Do you still believe in tech stocks? It's a Duel smackdown on Fool.com today. Contributors Tim Beyers and Richard Gibbons face each other at point-blank range. Tim thinks technology should be part of everyone's portfolio. Richard says buyer beware. Read the articles and then vote for the one you think is better.
In today's Motley Fool Take:
- AOL Overpays Again
- Shameless Plug: Get a Broker
- AT&T Hangs Up
- Discussion Board of the Day: Will AT&T's Move Hurt States?
- Apple Rocks Europe
- Quote of Note
- More on Fool.com Today
AOL Overpays Again
Simply put, Time-Warner's
Advertising.com is essentially a reseller of online marketing products from providers like Yahoo!
Advertising.com has a sterling list of clients, such as BMG and Wal-Mart
But AOL's acquisition of Advertising.com raises a conflict problem. Advertising.com is known as a search engine marketer (SEM). The purpose of an SEM is to get coverage in many channels. But since AOL is a marketing channel, might it be tempted to push customers its way?
In fact, the Advertising.com acquisition could scare the search engines, as well. After all, an SEM has access to lots of competitive intelligence of the many search engines. Might this information be used by AOL's own search initiatives?
Advertising.com recently filed to go public. It is interesting to note that the shareholders are taking $435 million in cash -- not stock in Time-Warner. Management of Advertising.com surely realizes the challenges and sees this as an opportunity to cash out.
Fool contributor Tom Taulli is the author of The EDGAR Online Guide to Decoding Financial Statements. He owns shares in FindWhat.com.
Shameless Plug: Get a Broker
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AT&T Hangs Up
Once upon a time, it was "The Phone Company." Got a problem? Call the phone company. Didn't have to identify which one because AT&T
This is a story the last generation would have largely bet would never happen. After the long-distance companies lost a recent regulatory battle with the Bell Operating Companies (BOCs) over access rates, AT&T announced that it would no longer offer new local or long-distance service in seven states. So someone needing service in Nashua, New Hampshire, or Fayetteville, Arkansas, or Columbus, Ohio, would be wasting his time calling AT&T for phone service. It won't sign him up. It doesn't want his business.
MCI likely isn't far behind. According to The Wall Street Journal, the company's considering exiting the consumer business in its entirety. AT&T said it stopped soliciting new customers in these particular states because it couldn't profit in those jurisdictions. The company simultaneously slashed its revenue expectations for 2004 from $32 billion to less than $30.
Last February, I selected AT&T as a candidate for shorting in the Hidden Gems predecessor Motley Fool Select. (See my review of these selections in The Long and Short of It.) With this most recent setback, the rationale for this decision comes sharply into focus. AT&T's basic phone service business is still being blasted on many fronts.
Earlier this month, long-distance companies suffered a setback when the FCC did not appeal a court decision that struck down its rules governing wholesale rates that the BOCs can charge for access. Several BOCs have complained that the rates they can charge are below their cost to provide the service to what are, essentially, rival companies. The battle isn't over, but what it still amounts to has less to do with competitive or anti-competitive practices than this simple fact: too many companies are competing for too few telecommunications dollars. This doesn't even include the Internet- and cable-based solutions eating even further into the market. Several telecommunications companies need to exit the business before the U.S. market will be anything other than a net destroyer of capital.
AT&T has the most to lose, since it is still the largest long-distance provider in the country and is still knee-deep in debt, even after its divestiture of cable and wireless assets. AT&T is a profitable company that creates substantial free cash flow and pays a dynamite dividend. These elements may make it attractive at some price. It may be attractive at the current price. But one needs to recognize that the environment where this and other long-distance companies works continues to deteriorate, and it won't stop until equilibrium is reached. With AT&T abandoning whole states rather than trying to compete, it's clear we're a long way from that point.
Bill Mann is wondering just why in the world people are excited about telecommunications these days, which reminds him more and more of the airline industry. He holds shares in none of the companies mentioned in this story.
Discussion Board of the Day: Will AT&T's Move Hurt States?
So AT&T stopped soliciting customers in seven of its least profitable states. Even though it will continue to offer phone services, what impact will its decision have on prices and the economy in those communities? Share your views on our AT&T discussion board.
Apple Rocks Europe
Here we go. The race for global dominance in music downloading is on, although Apple
CEO Steve Jobs was less than humble about Europe's appetite for Apple, proclaiming in a statement that iTunes is Europe's top online music store and noting that it had trounced competitor On Demand Distribution (OD2) in last week's downloads. Jobs has a right to boast, of course. iTunes and Apple's iPod have been huge hits in the U.S. And the early returns for iTunes in Europe could foreshadow further dominance in digital music for the firm.
But it's way too early to proclaim Apple the winner. As fellow Fool Seth Jayson has pointed out, Apple's competition in Europe is fierce. Besides OD2, which was recently acquired by Loudeye
There are other hurdles, too. According to a News.com report, Apple has yet to secure licenses to distribute music from roughly 800 independent labels representing many of Europe's most popular bands, including Jaxx, Franz Ferdinand, and the White Stripes. (I highly recommend the White Stripes' single "Seven Nation Army," by the way.) Till that treasure trove is made available to at least one of the major services, the digital music market in Europe is up for grabs.
That's key for Apple, because while digital downloading may not be much of a profitable business, iTunes is the engine that drives iPod sales. Bringing the best possible range of downloadable songs to consumers through iTunes Europe could prove crucial to keeping consumers on the Continent buying iPods.
Sorry, Steve, this battle is just beginning.
Fool contributor Tim Beyers had his iTunes collection blaring while writing this take in his downstairs office. He didn't want to disturb his kids. Tim owns no shares in any companies mentioned, and you can view his Fool profile here.
Quote of Note
"Liberty means responsibility. That is why most men dread it." -- George Bernard Shaw
More on Fool.com Today
When it comes to investing, Selena Maranjian says lots of heads are better than one in Wisdom in Numbers.
In other news:
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