Investing in Verizon and Shorting ATT: A Market Analysis and Outlook

The telecommunications industry, particularly in the United States, has been a highly profitable sector for years. Two prominent players, Verizon and ATT, have been experiencing both growth and challenges that are reshaping the market landscape. It is crucial to dissect these dynamics to make informed investment decisions.

Current Market Trends and Customer Behavior

Verizon and ATT have both reported significant profit growth, largely due to two main sources: customers moving away from competitors such as Sprint and T-Mobile, and new customers entering the market for the first time. Sprint, which has seen a major shift in ownership, is experiencing challenges in retaining its customer base, while T-Mobile is focusing on infrastructure improvements to gain market share. These shifts in customer behavior offer insights into the current state of the cell phone market.

Profit Challenges and Customer Disruptive Measures

However, the market is now considered saturated, with potential new customers already having their phones. To combat declining profit margins, ATT recently introduced a .61 cent fee to their customers' bills, generating a significant 711 million in revenue. Verizon is expected to follow suit, further squeezing consumer pockets. These measures might seem beneficial in the short term, but they come at the expense of customer loyalty and satisfaction.

Impact of New Equipment Plans and Market Redefinition

The move towards new equipment plans has also been announced, with both companies keeping heavy subsidies and passing these costs to the consumer. Traditionally, a smartphone priced at 599 from Samsung or Motorola via direct purchase would cost 1100 over 20 months for new users. Yet, rather than owning their devices, consumers would be on installment plans with no trade-in value. This move is perceived by some as a significant market disruption, potentially leading many consumers to buy directly from retailers or manufacturers, thus threatening the traditional equipment revenue streams of the Big Two.

Competitive Strategies and Market Players

The competitive strategies of T-Mobile are particularly noteworthy. They are offering more competitive equipment plans, driven by the success of a failed merger with ATT, which has led to a significant investment in infrastructure. T-Mobile is positioned to gain a substantial share of the market if consumers are convinced to switch from current providers. Conversely, Sprint faces significant challenges, both due to its recent acquisition by SoftBank and its internal network issues. The lack of a cohesive network strategy is a major setback, making Sprint’s market position uncertain in the short to medium term.

Long-Term Market Outlook and Investment Considerations

For investors, the long-term outlook suggests a cautious approach. Sprint, despite its current challenges, could be a wise investment given its cost-ineffective resources. Attaining T-Mobile, previously under the efforts of DeutscheTelekom, might offer a strategic alternative, providing Sprint with a more stable network partner. ATT, with its various acquisition strategies, continues its dominance but could face increased challenges as new competitors reposition themselves.

Conclusion and Recommendations

The telecommunications industry is undergoing a significant transformation, with consumer behavior and market dynamics shaping the future trajectory of major players. For those considering investments, a careful analysis of the current market trends, competitive strategies, and potential long-term outcomes is essential. While Sprint might present a unique opportunity for strategic investment, T-Mobile offers substantial growth potential. ATT, despite its market position, may face increasing competition and challenges.

Disclaimer: The author has extensive experience in the telecommunications industry, including a direct involvement in the launch of ATT Wireless, SBC (which purchased ATT), Qwest/USWest, and Sprint, providing a well-rounded perspective on the market.