AT&T (T) And Verizon (VZ): The Threat Of Mobile VoIP

Verizon (VZ) and AT&T (T) have a problem.Mobile VoIP is coming, with a vengeance. New higher speed wireless technologies like WiMax and CDMA EVDO REV A are being built out. One of the consequences of this is that a wireless connection will be able to support quality VoIP applications.

For the big cellular service providers, VoIP could undermine rates plans just as it did with landlines service starting about three years ago. First there was free Skype, and then Vonage (VG) with a price point of about $25 a month. The cable companies including Comcast (CMSCA) and Time Warner Cable (TWC) climbed on and the the phone companies were under siege.

Part of what has been offsetting falling line-line revenue for the big phone companies is their success with cellular. Verizon Wireless and AT&T Wireless lock customers in with long-term rate plans and cheap handsets. Consumers pay a big month price tag. A bill of $80 for a 30-day period is nothing. Heavy users pay much more.

As Gigaom reported: "In the end, traditional mobile carriers are powerless to protect their voice margins from the threat of VoIP."  The tech web sites adds: "They’ll (AT&T and Verizon) have to invest considerably in improving the network and that will be a losing game as pressure from VoIP will only hasten the pre-existing downward pricing trend."

Creative destruction. The stuff of business school case studies and McKinsey consulting assignments.

Verizon and AT&T are about to get into a double bind. Their land-line business is being undermined by VoIP and they face a future of sharp margin decline and lost customers if wireless VoIP takes off. The leave the "triple play" bundled services programs that will use fiber to offer consumers packages of TV, broadband, and voice. Of course, the cable companies are already owners of many, many of those customers.

The two big phone companies are sporting stocks that are near 62-week highs. Wall St. has to ask how long that will last.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.