Dow Jones Industrial Average (DJINDICES:^DJI) components AT&T (NYSE:T) and Verizon Communications (NYSE:VZ) undeniably dominate their industry. Together, they control nearly two-thirds of the U.S. wireless market, and though they face competition from upstarts such as T-Mobile (NASDAQ:TMUS), the two are widely regarded as a duopoly. The trend toward smartphones has proven immensely beneficial to both carriers, as AT&T and Verizon are really the only providers capable of offering high-speed, nationwide wireless service.
But the strong position that has allowed them to pay investors a steady stream of dividends might be coming to a close. Verizon and AT&T could be about to face a number of new competitors In the months and years ahead.
T-Mobile continues to disrupt
T-Mobile added more than 4.4 million new subscribers last year, bringing its total customer count to just over 46 million. While T-Mobile's network isn't as expansive as Verizon or AT&T's, the company has been able to lure in a significant number of subscribers by offering aggressive discounts.
Last year, it ended subsidies, igniting a trend that both AT&T and Verizon have followed to some extent. AT&T's Next and Mobile Share Value plans seem heavily inspired by T-Mobile's new policies, and AT&T briefly this year offered T-Mobile subscribers a financial incentive to switch services. Verizon has been less affected, but perhaps feeling threatened, simply started giving its current customers more data for the same price.
T-Mobile has promised to continue its aggressiveness; earlier this week it rolled out a new, multitiered plan designed to shield its subscribers from data overcharges. For $40, T-Mobile subscribers get unlimited talk and text, with 500 MB of monthly data. Once the cap is hit, subscribers will have to elect to purchase more -- there's no risk of inadvertently running over the limit.
Continued talk of a merger between T-Mobile and Sprint also raises at least the specter of another wireless major able to compete with AT&T and Verizon on a level playing field.
Comcast and Google mull entering the market
T-Mobile looms as the biggest near-term threat, but the telecom giants might also see competition from more unexpected quarters -- both Google and Comcast are reportedly mulling an entrance into the wireless market.
According to a report from The Information, Google is looking into providing wireless access in cities where its Google Fiber service is available. That's only a few markets right now, but as its fiber network expands, Google could prove to be a fierce competitor. Comcast is said to be considering something similar, using a network of Wi-Fi hot spots to offer data access to wireless subscribers. Comcast's Internet service is in far more markets than Google's, making it a more menacing threat, especially if it offers its cable and Internet subscribers a hefty bundled discount.
From consolidation back to fragmentation?
The Verizon/AT&T duopoly is a relatively new phenomenon: just seven years ago, there were seven major U.S. carriers and numerous small regional players. Many mergers later, the industry has become tightly consolidated, and the two Dow Jones telecom giants have immense power.
But though AT&T and Verizon's current position may seem unshakable, it may in fact prove short-lived. Facing rising competition, these solid dividend payers may not be as safe as they appear.