How Verizon could win the cellphone war

While AT&T deals with its T-Mobile acquisition, Verizon will get a free ride competing against 2 distracted rivals.

By Jim Cramer Mar 28, 2011 9:10AM

jim cramer of thestreetthestreetAnd the winner of the cellphone wars? It just might be Verizon (VZ). Hear me out on this.

 

I think the AT&T (T) move is brilliant, just brilliant. It has the two key constituencies in this country behind it: the unions, because the Communications Workers of America will support it, as they can unionize T-Mobile (AT&T is unionized), and the president, because the company has pledged to help the poor get cell service. That's game, set and match.

 

Once AT&T merges with T-Mobile, there will be very little incentive to cut prices, because the market will lose the deep-pocketed competitor. The other competitor, Sprint Nextel (S), needs to raise a lot of money to build out its network, and unless AT&T is told to subsidize Clearwire's (CLWR) build-out, which would help Sprint, then Sprint will not be as competitive.

 

Now, I like AT&T. Very much. Think it is terrific. Aggressive. Smart.

But it has to issue a huge amount of stock to get the deal done, and it has a gigantic $3 billion breakup fee if the deal is nixed and can't get closed.

 

Now consider Verizon. It is the ultimate free rider here. It will compete against two distracted companies and a third that will be weakened by the deal. It is not issuing stock. It now has Apple's (AAPL) iPhone. The deal could take more than 18 months to complete, if it gets completed.

 

That's all in Verizon's favor. On its own, the stock is a buy, but the competitive environment is just going to get easier and easier, courtesy of the hard work of AT&T.

I would buy Verizon right there. It can easily go through $40 before it gets expensive. That's how powerful this deal will be for them.

 

At the time of publication, Cramer was long AAPL.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Follow Cramer's trades for his Charitable Trust.

 

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2Comments
Mar 28, 2011 1:36PM
avatar

Party  Jim, what a bunch of BS.  AT&T just trumped Verizon and you didn't see if coming

Mar 28, 2011 3:19PM
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"im, what a bunch of BS.  AT&T just trumped Verizon and you didn't see if coming"

What are you talking about?  Cramer has recommended both for years. 
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