For years I have avoided certain segments of the stock market. Wireless telecom has been one of them, because wireless requires so much capital to set up and operate. Capital to pay for cell towers, updating technology, and lots of people to operate the system. In addition the competition was fierce, margins thin, and no one really knew which companies would survive.
Other areas I avoid are steel, car manufacturing, airlines and aircraft manufacturing, and retail. Steel, car and aircraft manufacturing takes immense capital to bring a product to market and the chance of failure is high. Airlines have been a horrible investment for day one. Lastly retail depends on a very fickle customer who can change shopping habits with no expense making retail stores a significant risk for investment.
Those of us old enough to remember AT&T when it was for all intents and purposes the only phone service in the country know in the early 1980's it was broke up into several Bell operating companies. The present AT&T is actually Southwestern Bell and several other Bell operating companies merged back together. During the 1960's and 1970's almost everyone who owned stock had some shares of AT&T due to the nice dividend and the sleep at night knowledge of the company being the only phone play. The difference is the current company is much more of a wireless play than a land line consumer and business service plan company. In the past decade AT&T has sold off much of the land line business and concentrated on wireless build-out. The current company has a large debt load, but a good bit of the infrastructure has been built now, so the future of this company is looking brighter. AT&T has a large cash flow, which it uses to pay expenses snd debt, continue technology improvements, and pay a nice 6.2% dividend, which it raises almost annually.
Verizon is the main competitor to AT&T. Verizon is the old Bell Atlantic. Verizon has also concentrated on wireless and currently has the largest subscriber base of customers . Verizon Wireless has a partner Vodafone, a large telephone company in Europe, that placed an investment years ago with Verizon by buying a 45% stake in the wireless part of Verizon. Now Vodafone is wanting to get paid back that investment, and frankly that is a rock hanging over Verizon's balance sheet as it moves forward. Some analysts do not think so, but I differ.
The other major national players in wireless are T-Mobile USA, US Cellular, and Sprint. With T-Mobile USA now planned merger with AT&T, there are only two major players left. Sprint, despite a 50 million subscriber base, has never been able to grow much past it's present size and technology and is considered the ugly ducking here due to it's weak data coverage and dealing with 3 networks in it's system. . US Cellular has about 6 million subscribers, so unless something changes they are in trouble of losing their market to larger more competitive players.
As AT&T wireless gets bigger, about 130 subscribers when it merges with T-Mobile, and Verizon with just under 100 million subscribers complete their build-puts of technology they will have the ability to cut prices and offer deals. They will also be able to demand better contract agreements from customers. I expect we will soon be back to the future having basically two systems of phones and networks. Smart phone makers and system switch makers will then be making no more than two sets of wireless technology.
Currently I believe AT&T has a leg up on Verizon, due to the soon to be larger size and the fact they have no partner which wants to payoff from it's investment. So if you are looking to take a position in the wireless market I believe now is the time and AT&T is your choice. But there are many analysts who think Verizon is the better play.
Some additional facts to plug into your assessment. Neither of the largest wireless players in the USA is in the top ten largest wireless providers in the world. China telecom has over 500 million subscribers. Europe's Vodafone and T-Mobile are both larger as well. GSM technology is used by about 80% of the world and the other about 20% is CDMA, with scattered other technologies much smaller share. AT&T is generally considered to have the best phone selection and Verizon the best coverage for now.
I currently own options on AT&T, symbol T stock.
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