WhatsApp? Not Prices! How Wi-Fi Will Save You Money

Includes: CSCO, FB, T, VZ
by: Max Koffler

Facebook (NASDAQ:FB) has recently made a shocking $19 billion deal to acquire the extremely popular "WhatsApp" for smartphones. The app allows users to send text messages to actual phone numbers for just $1/year after a free one-year trial. Unlike most tech booms, WhatsApp does not advertise on its app-its sole source of revenue is the annual fee. However, the app has gathered such a following that it is now a goldmine; it has 450 million active users, and is still adding 1 million a day in 2014. It became so popular that Google (NASDAQ:GOOG) had placed a $10 billion bid for it before Facebook. That fact that two of the biggest tech-giants placed such large bids for WhatsApp highlights its strategic purpose. Facebook (about 1.23 billion users) will most certainly use this acquisition to expand its influence in the instant-messaging region, something that the unpopular Facebook Messaging app failed to do. Although Facebook's newfound dominance in this region directly threatens messaging competitors such as Microsoft's Skype (NASDAQ:MSFT) and Twitter (NYSE:TWTR), in a broader sense, it threatens our current lifestyle and cellphone providers worldwide:

"In 2012, according to Cisco Systems (NASDAQ:CSCO), one-third of all data traffic from smartphones passed through a Wi-Fi router. Cisco expects that to rise to almost half by 2017. The trend is more pronounced with tablets, as more than two-thirds already connect to the Internet exclusively through Wi-Fi. That's a problem for big U.S. carriers, who have spent a fortune on 4G networks to sell faster, pricier data plans as their revenue from voice plans tails off."

-Brenden Greely, Bloomberg Business Week

Cisco's report highlights the shift to Wi-Fi from not only data, but also messaging. Currently, the average monthly phone bill is $47.16. Now, as one of the former countless iPhone users in the world, I can easily tell you that my monthly phone bill skyrockets past this average-close to $80 with AT&T (NYSE:T). So how is this phenomenon possible:

"The decline in the across-the-board average price per unit, then, seems to be the result of consumers turning to options other than the typical providers and the typical plans. While plans with monthly contracts, subsidized handsets, and penalties for early termination have been the standard for quite some time, cheaper prepaid plans are growing in popularity. Sales of prepaid smartphones has risen 91% fact."

-Brad Tuttle, Time Business and Money.

Consumers have also gone with "second-rate" providers that make their bucks with smaller monthly bills. Sprint's Virgin Mobile (NYSE:S) and Metro PCS for example, offer wireless plans starting at $35, and $45 per month, respectively, which include unlimited texting, calling and limited data.

People are generally fed-up with paying fortunes for their phone bills, so they are turning to cheaper alternatives for their communication. Facebook, already a Goliath in this field, linked together with WhatsApp, may become an unstoppable force. As Wi-Fi gains traction, there becomes less of a reason to maintain a costly cellular bill in place of virtually free options such as WhatsAapp and Skype--both of which include international communication at no extra cost. Unless they adapt, the future of cellular network monopolies like AT&T and Verizon (NYSE:VZ) may just be on death row for the long term-a recent report found that text messaging accounted for 19% of their total revenue.

Stock Talk: Short-term traders should not be overly affected nor worried by this. Facebook may have a minor boost, but competition like Skype and Twitter are still different and unique and should maintain their current following. Phone companies will retain their dominance--for now at least. However, long-term investors may want to be wary of these cellular networks, for they may disappear within a decade. Instead, they should be replaced with Wi-Fi networks such as Boingo (NASDAQ:WIFI) and Cisco, or perhaps the software that will be used on those systems, like Facebook with its new baby, WhatsApp.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.