Industry analysts firmly place the blame for the stocks' performance on a battle that Verizon (VZ) , AT&T (T) , T-Mobile (TMUS) and Sprint (S) have been waging for the last year over new customers. This situation is extremely advantageous to consumers because it keeps down costs and offers them more choice. But it is proving costly to the carriers.
"The ability to move between carriers has never been easier. The carriers are willing to pay to get customers from each other and AT&T, Sprint and T-Mobile now have no-contract deals giving users even lower cost," IDC's telecom analyst Brian Haven told TheStreet.
Just this week T-Mobile upped the ante by rolling out a new "unlimited" plan offer, while Sprint unveiled its "Cut Your Bill in Half" program last week. Sprint has already reported positive results from its new plan.
These plans may gain new subscribers, but they also make investors wary because they create an unstable market with essentially the same group of customers shifting from company to company instead of creating real growth, said Bill Menezes, principal research analyst at Gartner (IT) . As proof, Verizon and AT&T made comments on a weaker-than-expected fourth quarter.
"Investors want to see long-term profitable growth," Menezes told TheStreet, adding that this is unlikely to happen in the short term because it is so difficult for each company to maintain their customer base when a competitor is willing to pay them to move away.
Sprint had a disastrous year, with its stock value tumbling 58.2% for the year to date. T-Mobile is down nearly 24% so far this year. By comparison Verizon and AT&T have performed better, down for the period 4.8% and 6.3%, respectively.
This willingness to spend huge sums to steal customers from the competition may create an even larger problem in the future when the carriers will need every penny to buy additional spectrum, which has proven much more expensive at auction than anticipated. They'll also need funds for infrastructure improvements. With their deeper pockets and more diverse product portfolio, Menezes said Verizon and AT&T are better situated to handle a price war and still have funds available for additional growth.
"Sprint and T-Mobile will have trouble down the road upgrading their systems while they are now spending big bucks to acquire customers," Menezes said.
Verizon is also in a tough spot right now as it is the lone carrier that still requires its customers to sign a two-year deal, which makes it less attractive, Haven said.
"One wildcard that may have impacted the carriers negatively is net neutrality. All the carriers are against it, saying it could impact profitability, and for investors that is not a good thing," Menezes said.
However, this situation is not insurmountable and a fix is on the horizon.
Leading the way toward stability will be new consumer products and services, such as wearables and connected cars with dedicated data plans. Haven noted that AT&T is ahead of the curve, having committed itself to the connected car market and already rolled out several products.
Overall, the connected car market will blossom for the carriers as car makers are increasingly bundling connectivity solutions such as LTE, and 3G with their vehicles. By 2018 about 50 percent of all vehicles made worldwide will be connected in some fashion, according to the automotive research firm MarketsandMarkets.
The market for wearables, which includes smart watches, fitness trackers, smart garments is poised to explode over the next four years with unit shipments to hit 91.3 million in 2018, up from 73 million this year, according to Gartner.
Once consumers start adopting these new technologies and adding additional data lines to their shared plans Menezes and Haven believe the churn between carriers will slow and stability will be restored.
"Over time these people will become profitable subscribers," Menezes said.
TheStreet Ratings team rates AT&T INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate AT&T INC (T) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
You can view the full analysis from the report here: T Ratings Report