Telecom & Wireless

AT&T Faces Same Profit Woes as Verizon

Cell Tower detail
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Late Monday, Verizon Communications Inc. (NYSE: VZ) said that it expects the impact of its recent promotional offers to put “short-term pressure” on earnings in the company’s wireless segment. Tuesday morning, the CEO of AT&T Inc. (NYSE: T) said much the same thing at the company’s investor day presentation.

The country’s two largest wireless carriers have been forced into a competition neither sought with both Sprint Corp. (NYSE: S) and T-Mobile US Inc. (NYSE: TMUS). AT&T expects its customer churn rate to be higher in the fourth quarter, but the company also expects subscriber count to keep growing. Like Verizon, though, profitability will take a few licks.

Sprint recently launched a cut-your-bill-in-half promotion to try to lure customers away from the big two, and both Sprint and T-Mobile will pay early termination fees for new subscribers. AT&T and Verizon have been forced to cut prices to match the offerings from the little two.

The big question is which company or companies run out of money first? While it seems pretty obvious that AT&T and Verizon have a lot more cash to toss around, continued profitability is needed by both if they are to keep up both the generous dividend payments and their investment in new services.

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If the smaller competitors can get one or both of the two giants to blink (i.e., reduce their dividend) then the smaller companies will have won a battle, though they could still lose the war. Even though overhead costs are lower for Sprint and T-Mobile, neither can afford to keep cutting prices indefinitely. Sprint, with the deep pockets of SoftBank behind it, may have a longer leash, but it is still on a leash.

Stocks of all four carriers were battered Tuesday though. In late morning trading, T-Mobile was down 4.9%, at $26.91 in a 52-week range of $24.50 to $35.50.

Sprint traded down 2.8% at $4.61, in a 52-week range of $4.53 to $11.47. The low was posted earlier Tuesday morning.

AT&T traded down 2.5% to $33.01, in a 52-week range of $31.74 to $37.48.

Verizon traded down 3.5% to $47.19, and the 52-week range is $45.45 to $53.66.

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