The usually staid telecom industry has recently demonstrated real verve. On June 14, Sprint Corp (NYSE:S) unexpectedly pulled a Kim-Jong Un and fired off a promotional salvo. Their website announced that new customers can have a year of free phone service, which includes unlimited data and text, and 10 gigs of hotspot data per line. Now, the question is, how will industry titans AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) deal with this?
On the surface, Sprint’s promotion is a tough one to match for T stock and VZ.
According to telecom analyst Craig Moffett of MoffettNathanson fame, the company launched “arguably the most aggressive promotion in the history of the U.S. wireless industry.” It’s also one of the most pugnacious in terms of putting a rival “on blast,” as the kids like to say. Sprint specifically urged customers to not get ripped off by Verizon in marketing their $900 savings promo.
As a caveat, Sprint’s promo is “purely promotional,” according to Gartner telecom analyst Bill Menezes. He believes that the other major carriers will wait for hard numbers before diving in with their own audacious sales.
Of course, the industry is extremely reactionary. Neither AT&T nor Verizon are strangers to playing the one-upmanship game. When VZ made its big move into offering unlimited data plans, AT&T followed close behind.
Will this latest clash of telecom giants impact T stock?
AT&T Stock Has the Right Mix
Looking well further down the road, the unlimited data plan warfare could really mean something. The 5G wireless network is the next big innovation for the sector. AT&T earlier declared that 5G speeds could equal or outpace cable internet. That’s great from a technological perspective, but the data usage would be stratospheric. In the age of video streaming and whatever else the kids are doing, unlimited data represents a serious potential liability for T stock.
Interestingly, Verizon beat out AT&T in their heated bid for Straight Path Communications Inc (NYSEMKT:STRP). This previously little-known company specializes in millimeter wave spectrum technologies which are vital for implementing the 5G networks. Still, I don’t think that T stock investors need to worry too much.
AT&T has absorbed considerable criticism for its profligate spending, but we should also consider that they exercise restraint on occasion. The STRP deal is a great example. AT&T offered $1.6 billion for the telecom minnow. Verizon stepped in with $3.1 billion. The former rightly walked away from the deal, and probably caused a collective sigh of relief from T stock shareholders.
Management understands that in order to survive in the industry’s current phase, they have to expand to viable growth opportunities. Are AT&T’s acquisitions of Time Warner Inc (NYSE:TWX) and DirecTV crazy expensive? Absolutely. But they’re also crazy necessary if it wants to grow in a saturated telecom market.
And let’s be real — I’d rather have T stock than VZ shares. Verizon purchased AOL, and has recently finalized its Yahoo! Inc. (NASDAQ:YHOO) acquisition. These are two troubled names that, in my opinion, don’t offer much for Verizon.
T Stock May Be Imperfectly Perfect
By way of comparison, AT&T is down 10% year-to-date in the markets. VZ is close to shedding 15%. Granted, both are pretty deep in the red, and as InvestorPlace contributor Lucas Hahn would argue, both are spending too much money.
I completely understand Mr. Hahn’s reservations. At the same time, you have to pay to play. I don’t want to punish T stock for being in an expensive, high-barrier to entry sector.
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Given its strong position in the telecom and multimedia sphere, I think that T stock has greater upside potential than down.
By no means is AT&T stock a perfect opportunity. Its financials are definitely stretched, which makes its dividend payout questionable. However, this is the new reality of telecom.
The company has no choice but to spend big, but at least they’re spending it comparatively wisely. That’s enough to warrant T stock a closer look.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
