This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

iPhone May Drive Telecoms Paranoia In 2012

NEW YORK ( TheStreet) -- Words like détente and duopoly are regularly used by consumers and industry skeptics to describe the telecom sector, which is dominated by giants AT&T (T - Get Report) and Verizon (VZ - Get Report), as second tier players like Sprint (S), MetroPCS (PCS), Leap Wireless (LEAP) and T-Mobile USA struggle.

Despite moving to usage-based data pricing in 2011, AT&T and Verizon continue to add to their market dominance. But paranoia cuts both ways.

Both carriers have spent billions to build networks to handle rising smartphone data loads, all with an uncertain payoff that's tempered by the safety of their 5% dividend yields.

Conflicting fears of concentration and uncertain capital investment returns in the telecom sector have now evolved with Verizon's move to a "share everything" plan, which allows families to bucket mobile devices, in addition to talk, text and data usage onto one bill. As Investors weigh a fast changing industry, they should focus on carrier relationships with Apple (AAPL - Get Report) as an early read on whether AT&T and Verizon are primed for rising returns on their network investment, or whether their feared 'duopoly profits' will fizzle.

Verizon's pricing change indicates that it is focusing on adding smartphone and tablet devices to its network, while connecting phone bills directly to data usage, over a mélange of data, text and talk. When AT&T follows suit, both carriers will need to prove that device-based network growth -- led by smartphones like the iPhone -- can be done profitably.

Meanwhile, headwinds like subsidies to gain iPhone subscribers, consolidation among second-tier players, and the emergence of DISH Network (DISH - Get Report) as a competitor loom as threats to AT&T and Verizon.

For instance, Craig Moffett, a Bernstein analyst and sector skeptic, questions whether the center can hold on the prospective profits that some fear will gush into AT&T and Verizon, at the expense of consumers.

"I think the end of the year is going to look more like the beginning of the year than people think," says Moffett. By that he means a return to challenging revenue per user trends that put wireless investment returns at or below AT&T and Verizon's cost of capital, after they recently posted strong quarters.

"The big issue in the industry for investors is whether or not carriers can show better discipline in handset subsidies," noted Moffett, in an interview prior to Verizon's pricing change. Recent attempts by Sprint and Leap Wireless to add Apple devices to their networks have hit shares, as investors anticipate the costs of subsidizing the iPhone.

But as Sprint and Leap Wireless add iPhones to pre-paid mobile plans, Verizon and AT&T's expected "share everything" plans may signal a willingness to continue subsidizing new iPhone users, which can cost roughly $500 a device. "Whether or not discipline sticks when a new iPhone arrives on the shelf remains to be seen," adds Moffett.

With the pending rollout of the iPhone 5, Jefferies analyst Peter Misek is skeptical that carriers will be able to cut their Apple subsidy habit, even if they can wean off of Google's Android. "We believe the iPhone 5 will be LTE-enabled and that the subsidy reallocation will likely help rather than hurt Apple," wrote Misek in a note to clients earlier in June.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $128.46 0.00%
DISH $75.04 0.00%
S $5.12 0.00%
T $34.56 0.00%
VZ $49.45 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs