Telecom heavyweights T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S) captured headlines and received a big lift in the markets. In a stroke of good fortune, Federal Communications Commission chairman Ajit Pai recommended approving their $26 billion merger. But as great as this news is for TMUS and Sprint speculators, sector giant Verizon (NYSE:VZ) stock also received much love.
Granted, the scale is completely different. T-Mobile shares jumped nearly 4% on the news, while Sprint went berserk, gaining almost 19%. On the other hand, the VZ stock price increased a modest 1.6%. It was a similar tale with telecom leader AT&T (NYSE:T), which eked out a 1.2% single-day profit.
But why would this merger help either AT&T or Verizon stock? The combined T-Mobile-Sprint entity will have a wireless-subscription base of 125 million customers. AT&T won’t feel immediately threatened with their 148 million subscribers. But Verizon has 118 million subs, which would put it last in this three-way race.
Nevertheless, it’s important to recognize market sentiment here. Despite the sudden presence of a third stalwart in the mix, the VZ stock price went up, not down. I don’t think this swing, albeit a small one, is an anomaly.
For one thing, Verizon is the dominant leader in the 4G network, with 70% coverage. There’s quite a gap from there to T-Mobile in the number-two slot, with 59%. Plus, VZ delivered the world’s first 5G service, giving it a leg up on the competition. That’s one reason not to worry about Verizon stock.
The other reason is customer loyalty. Here, T-Mobile wins but Verizon holds a strong second. Combined with the coverage-advantage, VZ stock is compelling.
VZ Stock Is Fundamentally Critical to National Interests
But for me, the overriding factor supporting the bull case for Verizon stock is the ultra-long-term national interest. Pai listed out his agency’s top goals during the merger-approval announcement, stating, “Two of the F.C.C.’s top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity.”
I don’t think you can overemphasize this point: the U.S. must win the technology race if it wants to maintain its global economic and military dominance. Our fiercest adversaries, China and Russia, already have strategized their vision that extends decades. Based on the priorities of the President Donald Trump administration (ie. the wall), we may be desperately behind.
Therefore, it’s critical that we not only build out our 5G network, but that we decisively lead the sector. Obviously, with Verizon taking that key first step, this embodies the leadership our government wants and needs. You can easily expect support at the highest level, which bodes extremely well for the VZ stock price.
Really, it’s the same argument for AT&T. Recently, I mentioned that T shares represent more than a mere investment. When you have Russian President Vladimir Putin essentially stating that he’s going to do his level best to win in artificial intelligence, these telecom giants immediately take on more significance.
With AT&T or Verizon stock, you don’t need to get complicated: we have to win and win bigly in 5G. This groundbreaking platform is the backbone of all technologies of tomorrow. If we’re going to do anything — be it AI, automation, or robotics — we must implement the best telecommunications network.
I would say that anything short of that jeopardizes national security because the pace of innovation is exponential.
Verizon Stock or AT&T?
If you’ve decided to invest in telecom — and it’s a very wise decision — you now have a choice: assuming you’re going with the leaders, do you pick Verizon stock or AT&T?
Both names are similar in their size, fundamental importance and potential reach. While some analysts may swing one way or the other, I think it comes down to risk tolerance.
Obviously, AT&T carries more risk because it has much more debt than VZ stock. That said, I’m more convinced that the former has made relatively smarter choices in their acquisitions. For instance, while the DirecTV buyout has not panned out well, it has some possibility of at least breaking even.
I say that because streaming isn’t a complete panacea. It has drawbacks, such as requiring expensive high-speed internet, and limited access in remote areas. On the other hand, Verizon buying out assets like Yahoo probably has no chance of redemption.
Still, Verizon stock is on paper the safer way to go. Based on how critical 5G technology is and will be, you can’t go wrong with either giant.
As of this writing, Josh Enomoto is long AT&T stock.