There is a lot of commentary about AT&T (T) buying T-Mobile (OTCQX:DTEGY) to become the biggest cell phone company. But how about best? Today, that honor was bestowed on Verizon (VZ).
Amid all the mergers and maneuvering of U.S. wireless carriers, they continue a steady rollout of faster cellular-data networks, dubbed "4G," for fourth generation. While the companies all use that term for marketing, the actual technologies they've adopted to deliver 4G differ, and so does the performance.
I have been trying out the ThunderBolt and I have found it to be a speed demon. Simply put, when used on Verizon's LTE network—which isn't yet available everywhere—the ThunderBolt delivered by far the fastest cellular data speeds I have ever experienced on a wireless phone. In my tests, it blew away not only common 3G phone speeds, but the 4G speeds offered by rival carriers. In fact, it was faster than many home land-line Internet connections. “Verizon's ThunderBolt Moves Like Lightning” (The Wall Street Journal, by Walter S. Mossberg, March 24)
Mossberg is a respected technology analyst and is widely followed. His write-ups are objective and help people and companies decide what direction to take.
How important is speed?
Higher wireless speed is essential. Smart phones, iPads/tablets, and laptops are now built to make heavy use of download/upload transmission. Today’s slow speeds are a frustration likened to past dial-up woes.
Here’s Mossberg’s quick description of the wireless industry’s current speed status (having described Verizon above):
Of course, its [Verizon’s] competitors aren't standing still. Sprint was first with 4G and continues to expand its network and add devices. T-Mobile, which agreed to be acquired by AT&T, has a rapidly growing 4G network, though it really is based on a souped-up version of 3G. AT&T has lagged behind, but it claims it will step up its 4G rollout this year.
Note especially that AT&T description: “lagged behind.” So, the company is not only lowest in customer service, it is also lowest in speed.
The doubt is out
In "Industry Split Over AT&T Deal
" (The Wall Street Journal, March 23, page B-3) the view of the AT&T/T-Mobile combination by others is examined.
Some industry analysts say Verizon Wireless could benefit from the deal, which would remove a low-price competitor from the market and distract its main rival.
Still, the combination would leave AT&T one-third larger than Verizon Wireless, affording it greater efficiencies of scale and more sway with device makers and equipment suppliers.
Those "greater efficiencies" will take time to achieve. They require a truly amalgamated company, not a simple financial combination of two different entities. The problems during this time of becoming one business are:
- There is inefficiency, even turmoil, at all levels (due to position, staffing and operational differences and overlap)
- Staff is distracted by trying to bring the two together
- Deciding how to merge different cultures
- Those customer contract termination dates keep coming
Meanwhile, Verizon is free to continue forging ahead with what really matters: Technological improvement and customer satisfaction. No wonder that, while Sprint (S
) publicly criticized the merger, Verizon "shrugged it off."
Can AT&T catch up?
The company is lowering its odds. In “AT&T + T-Mobile = Nirvana? Beware the Hype
,” I explained how AT&T’s purchase is going to be a setback. Management and staff will spend time and resources trying to blend two, different entities into one, cohesive whole.
Ironically, AT&T, although getting a provider with better service speed, is going to spend $8 billion changing over T-Mobile’s cell phone towers. Then it has to change T-Mobile’s customers’ phones, spending countless hours and unknown resources to merge T-Mobile’s customer base into AT&T’s.
Will T-Mobile’s customers stay?
This is a good question. What if, upon contract expiration, customers simply walk to Verizon for proven higher speed and better service? We already know that AT&T is seeing a drain now that the iPhone is at Verizon.
Note: Verizon could equal AT&T’s new, merged size (ignoring growth to come) if one of every eight AT&T/T-Mobile users switched to Verizon.
What a mess for AT&T. And what a blessing for Verizon.
So… For investors, the signs are clearer. Verizon is on a growth path (See “Verizon's 4G Strategy Puts It Firmly on Growth Trajectory”) while AT&T’s path mires the company in merger-mud. Remember: Mergers can produce “biggest” but rarely “best.” Moreover, being best is what eventually leads to being biggest.
Warning to investors
Do NOT make your investment decision on valuation measures. On that basis, AT&T looks better than Verizon. It’s a value trap. Too much is known and talked about with both firms – meaning those differences are based on analysis. What the market is saying is that Verizon looks better than AT&T (confirmed by Verizon’s better price performance).
Dividend yield: Verizon 5.3%; AT&T 6.1%
Forward (next 12-months) current price/estimated earnings ratio: Verizon 14.2x; AT&T 11.0x
Performance (12-month): Verizon 29%; AT&T 14%
Performance (1-week): Verizon 8%; AT&T 3%