AT&T Faces Same Profit Woes as Verizon

Telecom & Wireless

Published: December 9, 2014 11:15 am

Last Updated: April 27, 2020 5:05 pm

Late Monday, Verizon Communications Inc. (NYSE: VZ) said that it expects the impact of its recent promotional offers to put “short-term pressure” on earnings in the company’s wireless segment. Tuesday morning, the CEO of AT&T Inc. (NYSE: T) said much the same thing at the company’s investor day presentation.

The country’s two largest wireless carriers have been forced into a competition neither sought with both Sprint Corp. (NYSE: S) and T-Mobile US Inc. (NYSE: TMUS). AT&T expects its customer churn rate to be higher in the fourth quarter, but the company also expects subscriber count to keep growing. Like Verizon, though, profitability will take a few licks.

Sprint recently launched a cut-your-bill-in-half promotion to try to lure customers away from the big two, and both Sprint and T-Mobile will pay early termination fees for new subscribers. AT&T and Verizon have been forced to cut prices to match the offerings from the little two.

The big question is which company or companies run out of money first? While it seems pretty obvious that AT&T and Verizon have a lot more cash to toss around, continued profitability is needed by both if they are to keep up both the generous dividend payments and their investment in new services.

ALSO READ: America’s 50 Best Cities to Live

If the smaller competitors can get one or both of the two giants to blink (i.e., reduce their dividend) then the smaller companies will have won a battle, though they could still lose the war. Even though overhead costs are lower for Sprint and T-Mobile, neither can afford to keep cutting prices indefinitely. Sprint, with the deep pockets of SoftBank behind it, may have a longer leash, but it is still on a leash.

Stocks of all four carriers were battered Tuesday though. In late morning trading, T-Mobile was down 4.9%, at $26.91 in a 52-week range of $24.50 to $35.50.

Sprint traded down 2.8% at $4.61, in a 52-week range of $4.53 to $11.47. The low was posted earlier Tuesday morning.

AT&T traded down 2.5% to $33.01, in a 52-week range of $31.74 to $37.48.

Verizon traded down 3.5% to $47.19, and the 52-week range is $45.45 to $53.66.

ALSO READ: The Best Investments of 2014

It’s Your Money, Your Future—Own It (sponsor)

Retirement can be daunting, but it doesn’t need to be.

Imagine having an expert in your corner to help you with your financial goals. Someone to help you determine if you’re ahead, behind, or right on track. With SmartAsset, that’s not just a dream—it’s reality. This free tool connects you with pre-screened financial advisors who work in your best interests. It’s quick, it’s easy, so take the leap today and start planning smarter!

Don’t waste another minute; get started right here and help your retirement dreams become a retirement reality.