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Verizon vs. AT&T: Which Should You Buy?

One of these telecoms has several significant advantages

   

Just to prove that I’m not strictly on a witch hunt, I’m a long-term, satisfied customer of AT&T’s (NYSE:T) wireless phone service. I have no plans to change that, either — partially because of convenience, and partially because I don’t want to change something that already works great for me.

As an investor, however, I gotta say: Verizon’s (NYSE:VZ) wireless service looks like it’s going to eat AT&T’s lunch.

Yeah, I know both stocks have been going nuts since late April. Verizon shares are up 12% for the time frame, while AT&T is up nearly 15% for the same period. If you dial the clock back even further, the numbers get considerably bigger for both. Part of the bullishness is apt to be a “flight to safety” mentality, but, mostly I think the market just likes what it sees.

There’s a problem with that sector-wide bullishness, though — there’s not room for both at the top. The wireless market is saturated, and any growth from one of the two majors eventually will have to come at the expense of the other.

Here’s why I’ve got a feeling Verizon is going to win the duel:

Partnerships

Unless it has happened in your geographical market, you might not have noticed, but Verizon has been on a partnership rampage of late. Verizon is selling Comcast’s (NASDAQ:CMCSA) cable television and broadband services in select markets, while Comcast is selling Verizon’s wireless service. Each brings customers to the table the other company might not have attracted otherwise. Verizon also is partnering up with Time Warner Cable (NYSE:TWC) in the same way.

It’s likely a bit of a wash in terms of net revenue and net profits on a per-customer basis. But, it does crank up the total number of customers — the “bundle” incentives are pretty compelling, which is Verizon’s best shot at winning customers away from well-established competition (people like me, who otherwise have no desire to bother switching carriers). It’s on pace to offer the bundle/incentive to dozens of major markets.

3G/4G

Another confession: I don’t care whether my mobile web connection is 3G or 4G. But apparently, I’m in the minority. It matters, because Verizon now offers 4G LTE (long-term evolution) connectivity in 304 markets, where AT&T has a 4G LTE presence in only 39 markets. AT&T offers a 4G HSPA+ connection in more markets, but that’s a slower technology than LTE.

If you’ve not compared one against the other, trust me — there’s a difference. The 4G LTE gets the most out of a smartphone, and anything else turns them into expensive paperweights.

FiOS

Speaking of speed, Verizon’s FiOS (fiber optic service) is getting crazy fast. Where available, this top-shelf Internet connection is piping digital data into homes at a rate of 50 megabits per second to 75 mbps. (For perspective, just three years ago, 10 mbps was a big deal.)

Critics have worried that higher charges for the high-speed service would cause customers to balk. But given how much Verizon spent to build the FiOS infrastructure, there wasn’t a lot of choice — the company has to pay for it somehow. Thing is, the extra $10 to $15 added to customers’ monthly bill hasn’t been a big stumbling block; market penetration is increasing. Consumers seem to see the value of (and are willing to pay for) higher speeds, now that they’re needed to handle huge digital content loads.

Mobile Pricing

Last but not least, the revamp of Verizon’s mobile pricing plan has been questioned by many. The company has decided to offer a so-called “Share Everything” plan, where families share one huge data plan among several mobile phone owners. If you read the fine print, though, it’s apt to be a price increase overall for these plans, on a per-user basis.

Although AT&T has all but said it will follow suit, industry experts suggest this new pricing scheme could send business to second-tier players like Sprint (NYSE:S) and T-Mobile, if they maintain cheaper or unlimited data plans. As such, this is deemed a huge risk for Verizon.

There’s a key point being overlooked about the new pricing scheme, however — it’s actually reflective of the way people use (and pay for) mobile now … which is less for voice, and more for data. Oh sure, prices will move higher across the board, as this is just a nicely packaged wholesale price increase. That’s likely going to happen no matter who the carrier is, though. Despite grumbling, this isn’t going to trip the company up.

Bottom Line

It’s odd, when you stop to think about it. Verizon hasn’t done anything magical that AT&T couldn’t have copied, other than perhaps leverage its superior size. It simply has done some creative packaging, and has had faith that a superior product will draw a bigger crowd.

It’s nice to see those “old school” ideas haven’t gone out of style.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2012/06/verizon-vs-att-which-should-you-buy-vz-t/.

©2014 InvestorPlace Media, LLC

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