Who’s Winning the Wireless Wars?

08/10/2011 2:30 pm EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Both of the two big cell-phone service providers have their advantages, but as Roger Conrad of Utility Forecaster points out, there’s more than enough room in this industry for multiple companies to profit.

Well Roger, the big news earlier this year was Verizon Wireless (VZ) finally getting the iPhone. Many people have been looking for it for quite a long time.

Everyone that was going to hurt AT&T (T) dramatically, but that really hasn’t happened, and also AT&T has made moves to make a very, very big merger with T-Mobile. Can you tell us what’s going on and help us sort it out?

Well, I think a mistake a lot of people make when they look at the communications industry is assuming there can be only one ultimate winner. Of course, we were in a situation some years back where we did have one major phone company in the US.

But at this point, what we’re seeing quarter after quarter is that companies, the dominant companies, can each make very large dollars by upselling to people, by selling into the data market, which of course all these wireless devices have.

The CEO of Verizon, for example, says he expects 400% penetration of wireless devices in America. A lot of people have been hung up on the fact that wireless penetration as a whole is pretty close to 100%, but obviously in the companies view there’s a lot of upside, and they’re demonstrating it. Right now, again these earnings show that AT&T and Verizon deserve a higher share price.

What do you think of this merger?

Well, I think this is more or less an inevitable consequence of what’s been happening in the industry, which is consolidation of market share amongst the companies that can really handle the demands placed on them by tremendous demand for connectivity.

I mean, we’ve obviously seen tremendous proliferation of different wireless devices that requires a lot of spectrum. That requires a lot of money for the network providers to upgrade their infrastructure and to build the spectrum that’s needed to handle all of this network traffic.

There’s only a couple of companies out there that are capable of doing that in the wireless space in the United States, and that’s AT&T and Verizon. By buying T-Mobile, AT&T will garner quite a bit of new spectrum. It’s a network that’s complementary to their own.

Deutsche Telekom (DTEGY), the owner of T-Mobile, will be getting rid of an asset it really couldn’t afford to keep, couldn’t afford to keep up and to compete. So you know, T-Mobile was falling by the boards anyway. I think this is a nice exit strategy for Deutsche Telekom.

Again, a nice way for AT&T to add some more business and add some more strength.

AT&T has had continuing complaints especially when they had the iPhone about dropped calls. I know in New York it was rampant. Their network was just really not robust and as broad as Verizon’s. Will this help them, or are they just asking for trouble by trying to add someone else’s network to their own?

Well, I think it’ll help them ,because basically it’s increase their spectrum and so forth.

But the funny thing is, for all the complaints that you read about AT&T getting and all the predictions of these mass defections to Verizon, the place where Verizon picked up customers from were from other companies—Sprint, T-Mobile.

Sprint continues to lose post-paid customers and has become more reliant on prepaid, which are things like cellular phone cards and so forth. The low end area of the network.

AT&T really didn’t lose that much to Verizon. In fact, they had record iPhone sales. So I take a lot of those types of things that you read about with kind of a grain of salt. Obviously, people still like the network enough to continue with it.

Well maybe they’re just locked into contracts and can’t just get out.

Well, that’s possible, but of course you know people are very much looking at things like that, and it really didn’t occur in the first quarter.

That’s true. So…are you recommending one of them more than the other at this point?

I think they’re both fine. People say, which one would you own of the two? I would split the difference. I do own Verizon myself, and have for many years.

But not AT&T?

Not AT&T.

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