Mobile telephony has been a comfortable duopoly for many years. Customers who wanted national coverage were locked into contracts with one of two national carriers - AT&T (T) and Verizon (VZ) Wireless. The monopoly was so profitable Verizon was willing to pay $130 billion for 45% of it.
But the FCC doesn't want a duopoly. It wants a competitive market, with multiple national carriers using similar technology and competing on price and conditions of service.
That era has begun with T-Mobile USA (TMUS) branding itself the "un-carrier," breaking the unspoken pact among the players with regular phone refreshes and (NOW) the end of international roaming. Controlling contracts with "free" phones (actually paid-off over time at usurious interest) and roaming are two of the duopoly's major profit centers.
But in terms of network capacity, T-Mobile (even with the former Metro PCS) is a small fry. CEO John Legere knows this. He is working hard to make a market presence before the game really starts, after the network refresh Sprint (S) is planning.
I have been very skeptical in the past about Sprint's ability to execute on Masayoshi Son's audacious plan, which includes a full build-out of spectrum, including that of Clearwire (CLWR), and (eventually) a scorched-Earth marketing campaign similar to what T-Mobile has just launched. But given that his Softbank owns one-third of Alibaba, which may go public at a valuation well north of that of Amazon.com (AMZN), capital is now not going to be a problem. For me, the Alibaba asset is a game-changer, even more powerful for Sprint than for Marissa Mayer at Yahoo (YHOO).
Both T-Mobile and Sprint are aiming at grabbing big hunks of market share, and are willing to crash the industry's Average Revenue Per User, or ARPU, to do it. With technology platforms converging around 4G LTE, it means that over the next three years the U.S. market is going to look more like markets in Europe and Asia. Access is going to become a commodity.
Who do you want in that environment? I certainly don't want a company that has $130 billion in debt just to play the game, which is the situation with Verizon. Frankly, I'd be ready to short that stock - the company's option chain indicates there's a lot more action there betting on lower prices than rising ones already.
Given Sprint's lack of capital constraints, I'd call its price a bargain. You want to hold it for at least three years to see its capital campaign and marketing blitz play out. I'd wait until the marketing starts before considering any shorts, but when it does I think aggressive players can then make some money betting against both T-Mobile and Verizon.
And what of AT&T? Given that it's said to be making a run at Vodafone I'd say it knows the jig is up regarding its U.S. duopoly; that it knows it has to become a global carrier before the U.S. market becomes less profitable. It's currently selling at 1.49 times sales, despite the fading influence of its wireline business, so I wouldn't touch it until more is known about how and whether it can get out of the box Sprint and T-Mobile are building for it.