Verizon, AT&T war hinges on iPhone

As Verizon and AT&T fight for control of the iPhone-dominated smartphone market, Sprint falls further behind.

By TheStreet Staff Apr 13, 2010 10:00AM

Woman on cell phone  © CorbisDavid MacDougall, TheStreetTheStreet

 

AT&T (T), Verizon (VZ) and Sprint (S) have been slugging it out for years, most recently fighting for control of the iPhone-dominated smartphone market. While there's no clear winner, the weakest player is obvious. Avoid Sprint.

 

The war between AT&T and Verizon has been raging for months, with each company claiming the other's network is garbage. Noticeably absent from the debate is Sprint, which spends most of its advertising dollars on chest-thumping ads about its fourth-generation network, even though that network isn't available to customers living outside major cities in the Midwest.


While coverage is planned for major cities, such as New York, Boston and Los Angeles, Sprint's falling short on its main selling point.

 

The top three wireless carriers boast 224.4 million subscribers. That amounts to 73% of the 309 million people living in the U.S. Regardless of the elements that skew the numbers, such as customers with multiple accounts, the wireless business is an oligopoly led by a few heavyweights, followed by a slew of also-rans.

 

Telecom stocks have been trailing the broader market for the past year, with the S&P 500 Telecom Services Index falling 2.5% and the S&P 500 returning 7.9%. Verizon, the worst-performing member of the telecom index this year, has dropped 6.8%. AT&T had the second-biggest decline in the nine-company index with 2.9%. The best-performing stock was Sprint with a gain of 13%.

 

Verizon has been the industry leader with the largest number of subscribers, but AT&T seems to be winning the share price game based simply on its ability to retain exclusivity on the still hot Apple (AAPL) iPhone.


Several rumors have placed the iPhone on Verizon shelves by the summer, but no agreements have been announced. It's unclear whether that's a function of Apple's unwillingness, AT&T's influence or Verizon's inability to close the deal, but expect such a development to propel Verizon over AT&T in terms of stock returns and subscriber growth.

 

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Customers fed up with AT&T's finicky network would likely jump ship to join Verizon's more reliable network. Increased traffic on the Verizon network from iPhones would likely settle the debate over whether service glitches are caused by weak networks or the strain of smartphone use. Either way, if the companies offer similar products on similar networks, their stock prices will probably move in tandem.

 

Sprint would probably be left behind. One of the company's "hot" product makers, Palm (PALM), is likely to be acquired after its new offerings missed the mark with customers.


The network has no blockbuster phones on the horizon to compete with those of AT&T and Verizon. It appears that cell-phone service providers are essentially moving towards the utility model. With huge dividends of 6.3% for AT&T and Verizon, and little growth projected, big returns seem unlikely.


However, Verizon and AT&T look appealing if you're looking for dividend income in a low-risk package. Their low beta values of 0.7 mean the stocks don't swing as widely as market averages. Otherwise, investing in the phone makers looks like the best bet for solid share price gains. Either way, avoid Sprint.

 

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