Verizon, via of its Verizon Wireless joint venture with Vodafone Group, is the nation's number one provider of cellular services when measured by subscribers.
Trading at a p/e (ttm) of 16.22 at Friday's closing price of $31.63, the company is paying an annualized dividend of $1.90 or 5.90% cash yield on the share price. Valued at a slight premium based on p/e and dividend yield than its rival AT&T, both companies are components of the Dow Jones Industrial Average. Both telecoms are experiencing rapid change in their markets as US consumers unplug traditional landlines in favor of wireless communications.
Verizon may have committed one of the big technology blunders of the decade when it passed on the Apple iPhone. Either Verizon didn't see the potential for the iPhone or didn't like Apple's original revenue formula for the device. AT&T has been growing its wireless customer base and the much-desired data plan customer base in part at Verizon's expense due to AT&T's exclusive arrangement on the iPhone.
The good news for Verizon is the iPhone blunder can be put in the company's past through a deal with Apple for the highly popular iPhone when AT&T's exclusive on the device expires sometime in 2010. It's in Verizon's best interest to pursue a deal with Apple for the iPhone, the much-rumored Apple tablet device or both products in 2010.
Verizon's need for the iPhone to more effectively compete with AT&T and stop the defections of current and potential data plan customers makes a deal with Apple not only preferable, but a near necessity for the next year.
For AT&T there's no escaping the public's perception Verizon offers a superior quality service to customers. AT&T is racing to add and expand infrastructure as quickly as possible to meet the growing needs of iPhone users and address what are believed to be glaring service issues.
In my opinion Apple will not end 2010 without a deal with Verizon for the iPhone and perhaps the forthcoming Apple tablet device. I see a likelihood of a deal by summer. For AT&T the end of exclusivity may not be welcome news, but the company can leverage its existing relationships with iPhone customers through enhancements to the services provided and use what the company has learned about Apple's customers to continue to grow its wireless business.
For investors with low risk thresholds or investors looking for a balanced return (dividend yield and share price appreciation potential) both Verizon and AT&T may be attractive plays. Both offer an opportunity to profit from Apple's iPhone success without the risk of a high beta investment in Apple. In my opinion AT&T will continue to benefit from its relationship with Apple whether the iPhone is exclusive or non-exclusive and Verizon may represent a future iPhone play that can be acquired now.
As you know, Robert, I take a different view. I don't see the iPhone on Verizon in 2010.
ReplyDeleteI agree that Verizon would benefit from having it. I agree that they should do whatever they need to do (within reason) to get it. But the evidence suggests that Verizon management believes otherwise. If they were going to be selling the iPhone in 12 months, the deal would already have to be in place or nearly so. If that were the case, would Verizon be running vitriolic, derisive commercials directed at Apple? I simply cannot believe it.
There is evidence that Verizon CEO, Ivan Seidenberg, and SJ did not exactly hit it off going back to 2007. Seidenberg's comments in conference calls and interviews on the subject of Apple even suggest some animosity. That would certainly not prevent a deal in and of itself. But together with "there is a map for that", it is enough to cause me to believe it unlikely a deal is imminent.
Having said that, I do not disagree at all with your view that VZ and T are good investments. Both should be major players in the mobile internet and mobile communications space for years to come. And it a good thing to be big in a a hot market whether or not you have iPhone.
capablanca
My math is admittedly weak, but I am having a hard time understanding why the ATT contract expires in 2010. When it was announced in 07, the consensus was that it ran for five years. Is that not the case? I am reading the 2010 date everywhere, but haven't seen anyone explain this apparent discrepancy.
ReplyDeleteCan you set me straight on this, Robert? Thanks... always look forward to your posts.