Verizon’s new plan: Consumers win, investors lose
Verizon has brought back its unlimited data plan. It’s great if you’re a Verizon customer. But this is terrible news for its investors.
Verizon(() shares fell nearly 1.5% at the start of the session Monday. It is now down about 10% so far this year, making it the worst return for the Dow in 2017.
Verizon decision is a clear sign that the company must make every effort to remain competitive with its wireless competitors AT&T ((), Sprint (( ) and T Mobile (( ).
“In recent months, T-Mobile and Sprint have managed to take additional shares of Verizon because of their unlimited offers,” analysts at Morgan Stanley wrote in a report on Monday morning.
This may explain why the shares of T-Mobile and Sprint, which is now controlled by Japanese tech conglomerate SoftBank, are both up this year while Verizon is down. T-Mobile and Sprint have also always been linked as possible merger partners.
But the new telecommunications price war is not the only problem for Verizon.
AT&T recently acquired satellite provider DirecTV, a move that makes Ma Bell more competitive against Verizon in the battle to control people’s living rooms. Verizon offers its own FiOS broadband television service.
Related: Verizon Brings Unlimited Data Plans
And AT&T is also making a much bigger bet on content, with plans to buy from CNN’s parent company Time warner ((). Verizon already owns AOL and is looking to buy the main assets of Yahoo to strengthen its own digital content offerings.
But the Yahoo (() The deal could collapse following revelations of massive data breaches at Yahoo in recent years.
Yahoo recently said it hoped the Verizon deal would be reached in the second quarter of this year. It was initially to be finalized in the first quarter.
However, in its latest release of the results, Verizon simply stated that it “continues to work with Yahoo to assess the impact of data breaches” – not that he expected the deal to be reached anytime soon .
Verizon has a lot to do, which could make investors nervous. In addition to the agreement with Yahoo, the company also purchases the fiber optic network from XO Communications. And he sells his data center activity to Equinix (().
There have also been rumors in recent weeks that Verizon may even consider buying a cable provider Charter communications (().
This may be more than Verizon can realistically manage at the moment. But nothing can be excluded for Verizon given the competitiveness of the wireless world these days.
Anything that could give Verizon a head start on AT&T, Sprint and T-Mobile might be possible.
Related: the actions of the charter appeared on the report of a possible takeover of Verizon
However, it should be noted that AT&T shares are also down this year, down around 5%. And Verizon and A&T have something in common that Sprint and T-Mobile are missing – Verizon and AT&T pay huge dividends.
Companies with high dividend yields have not been as successful since the election of Donald Trump. Investors are betting on a major stimulus package from him and the Republican Congress, which could be fueled in part by debt.
This has caused bond yields to rise – and it makes stocks of big dividend payers like Verizon much less attractive.
The Federal Reserve is also expected to raise interest rates a few times this year. This could push bond yields even higher.
Verizon is therefore facing many major challenges that could harm its stock this year.
This is why Verizon, nicknamed Big Red because of the crimson hue of its logo, could see its stock in red for the foreseeable future.
CNNMoney (New York) First published February 13, 2017: 11:27 a.m.ET