by Mark Goldstein
The telecom sector is often looked at by investors for its many defensive characteristics. Not only do these companies traditionally offer higher yields than other sectors, they also benefit from the basic need for people to stay connected. In this article, I will focus on four telecom stocks that are moving to become more profitable.
While Sprint (NYSE:S) is streamlining by dropping Nextel, CenturyLink (NYSE:CTL) is securing new deals with the Social Security Administration (SSA). At the same time, Windstream (NASDAQ:WIN) is "saving" Pratt by updating its communications systems, while Frontier (NYSE:FTR) has sealed a new partnership with The Berry Company. Here is why I think these four telecom stocks belong together in your portfolio now:
Sprint Nextel is making plans as it heads closer to dropping Nextel and simply going by the Sprint name. As a result, the company has a number of challenges to face, the primary one being how it intends to hold on to customers that relied on the Nextel push-to-talk service.
One problem that may arise as a result of this situation is that a large number of consumers will suddenly be in the market for a new phone when the Nextel network is no longer available. This will happen by the end of June in 2013, and when it does happen, a number of Nextel phones will no longer work. The competition could catch up and snatch these customers away from Sprint with great once-off offers, so Sprint must begin preparing itself for this. Sprint is already making plans for dealing with this by offering to buy back phones that will not work after the close of Nextel and creating new contracts with these customers.
Many customers may be upset by losing the push-to-talk feature, so Sprint is frantically trying to get its new push-to-talk service off the ground. The new service is still in development. It goes by the name Direct Connect and runs solely on the Sprint network. This may be the answer for consumers who rely on this service, but this is only if Sprint can offer a decent product. Companies that may take advantage of the situation and "steal" customers from Sprint include AT&T (NYSE:T) and Verizon (NYSE:VZ), as these companies also offer push-to-talk devices.
That being said, I do feel that Sprint's new push-to-talk service could succeed. It will offer three times more coverage than the Nextel service that came before it. In addition, it comes with roaming and Sprint 1xRTT coverage areas. In fact, there have been a lot of enhancements made to Direct Connect, as Sprint is trying to convince customers not to move to other carriers. After all, this should improve services, so customers should not be upset by the slight complications. So far, the offerings that Sprint has come up with are rather impressive. Stockholders still need to ponder whether or not this will all be enough to keep customers and maintain the revenue stream at its current state, but I have high hopes for it at the moment.
Direct Connect also marks an important milestone for the company. Sprint recently announced its intention to upgrade its entire network system to the most advanced technology in the industry, which would give it a serious edge. Direct Connect represents a major step in the right direction. Sprint is also working with vendors, making the decommissioning of Nextel far smoother. These vendors could help the company ease the process of migrating from Nextel to Sprint's Direct Connect push-to-talk system.
Sprint seems to be moving in a good direction, therefore, but to keep things in perspective, it is worth looking at Sprint's competitors as well.
CenturyLink recently entered into a deal with the Social Security Administration. According to the terms of the deal, CenturyLink will be responsible for providing the SSA with support for its data network. The agreement is valued at $233 million, and it will be valid for the next five years. Deals like these may help keep the company ahead of the game. Although it is a huge investor, it does not let its balance sheet get out of control. Consequently, it is fairly consistent at providing stockholders with the returns that they want to see. Due to its good news at the moment, furthermore, the stock should be increasing slightly in the near future.
Sprint competitor Windstream was recently chosen as the "savior" for Pratt Industries. The tech company will provide Pratt with customized managed Unified Communications services. The packaging company's communication system will be significantly updated. This is a big project for Windstream, as Pratt has 72 locations across the world. This shows that Windstream is a tech stock that can handle a big project like this and provide an above-average service at the very least. As a result of this good news, Windstream stock should be doing relatively well.
The Berry Company and Frontier have announced that they will continue the partnership that brings us FrontierPages, the Yellow Pages, and advertising solutions for small and medium businesses. The two companies successfully provide a reliable and comprehensive source of directory information. The service is a popular one, and as a result, this is a profitable partnership for Frontier to maintain. As it is a Fortune 500 company, we have come to expect great things from Frontier, and it continues to deliver. I expect good things to continue with this company and the stock in the future.
Verizon has finally released its new internet tiers, and users will be able to examine the new packages for suitability. The pricing structure seems fair when you consider the increased speed that you are likely to experience. Verizon has identified a growing need in our society for faster access. In addition, it has also noted that the amount of broadband usage in private homes has gone up. The new tiered packages are aimed at addressing these needs and creating a situation where the Internet is a more convenient and accessible resource for everyone. The stock should be increasing soon, as Verizon is meeting a great need that its customers have.
Sprint definitely has the right strategy in terms of advancing its systems and upgrading its networks, but there is growing concern that the change could result in a fairly substantial loss of clientele. Even if this does happen though, I feel that it will only be a temporary problem and that the company will be able to successfully attract new customers. Its competitors have had good news recently as well, so there may be some better choices in the industry. Regardless, Sprint seems like it is aware of future problems and is working far in advance to address them. It seems like a decent stock at the moment, and the company is beginning to look much more promising in the long term as well.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.