The telecom industry represents one of the most difficult markets to break into as a result of the tremendous amount of pressure that is placed on providers to meet coverage demands and develop a strong infrastructure. This is beneficial to investors so they can identify companies which are strong in the market and companies which should be avoided. One of the largest stories currently impacting the telecommunications market is seen with the failed acquisition of T-Mobile USA (DTEGY.PK) by AT&T Inc (T).
It was announced by AT&T in December of 2011 that it had ended its bid to acquire T-Mobile as a result of a significant amount of resistance from the Federal Communications Commission, the Department of Justice as well as from leading competitors. This ended the possibility of AT&T taking a strong jump in wireless service providers in the U.S. cellular market, possibly leaping from 31.9% control to 42.9%. The missed opportunity of AT&T to take a commanding lead in communication services as a result of this loss has proven beneficial to competitors seeking to boost their success in the wake of the merger failure. The following addresses five telecom stocks which could be affected by the results of this failed merger in the telecom industry.
CenturyLink, Inc. (CTL) - CenturyLink's merger with Quest last year was a brilliant decision that, in my opinion, will yield significant opportunities for cost-cutting synergies relating to sales and administration. By my calculations, the merger added approximately $1 per share on a discounted cash flow basis to CenturyLinks's fair value. CenturyLink represents a company that is currently on the rise, slowly increasing its market capitalization and capturing new consumers every day. For a smaller company this creates promising signs of continued progress, which is why I would recommend this telecom stock to any investor seeking investment into this field. This recommendation is supported by the advantages related to this investment found with the high dividend yield currently distributing around 7.78%. When you combine this factor with the quarterly revenue growth of 162.93% I believe it promises to be a strong investment to pursue.
Verizon Communications (VZ) - No company could have been more pleased to hear of the mergers failure then AT&T's leading competitor Verizon. Remaining a mere 0.8% behind AT&T in relation to U.S. cellular control, the success of this merger would have been devastating to maintaining market control. As AT&T is required to rebound from its $4 billion loss, Verizon can continue to expand its network coverage and increase features such as the 4G LTE network which is available in 195 nationwide markets with full deployment expected by the conclusion of 2013. I would strongly recommend an investor select Verizon as a telecom investment when you address the high percentage of cellular market control, 31.1% in the U.S. combined with the struggle of AT&T. This highly attractive possibility along with the fact that it has been reported that Verizon just added 1.2 million subscribers onto plans with contracts (the second best result during the previous two years), this company appears to be benefiting from the current market.
Frontier Communications Corporation (FTR) - Similar to the failed merger benefits previously mentioned with CenturyLink, Frontier has the promise of a smaller company finding greater success when the larger competitors are restricted in size. However, following the current patterns set by Frontier I would recommend an investor hold off on this investment for the time being. This is because Standard & Poor's recently altered its outlook of the company, removing its rating of stable and changing it to negative. This has only helped in further declining the company's stock value as it has seen a steady drop of 53% in the last 12 months. If the company is able to overcome its current revenue and cash flow problems there is great hope considering its current market value is around $4 where it should be closer to $10. I would avoid investing in the company now but watch for recovery since there is a great possibility for growth and a chance to capitalize on an incredibly high dividend yield of 17.40%.
AT&T -It is true that AT&T has had some unfortunate news with the failed merger of T-Mobile but there is a silver lining on the horizon. Even without the addition of T-Mobile, AT&T has a controlling interest of 31.9% of market share for providers in the U.S. Cellular Market. Expansion of their own 4G LTE grid will help to increase consumer interest as the value of smart phones continues to increase. Following the stock drop in December as a result of the press release regarding T-Mobile, AT&T has rebounded and is currently trading close to its target price of about $32. Together with a higher dividend yield of 6.04%, this company still represents an industry leader that I would recommend investing into.
France Telecom (FTE) - With the current fluctuations seen in the European markets most investors are hesitant about pursuing foreign investment. While this is often advisable, the telecom industry is a market that should be viewed through rose colored glasses as a result of the constant demand individuals, businesses and governments have related to the importance of communication. France Telecom is currently underperforming in the NYSE as a result of the current fluctuations in European markets and I believe this represents an opportunity for investors to purchase a quality stock while it is undervalued. This company features a market capitalization of $40.05 billion and offers a dividend yield of an incredible 12.83%. As European markets slowly recover I can see a swift boost in this stock which will prove financially beneficial to early investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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