How Telecoms Lifted the Dow Without Lifting a Finger
The Dow Jones Industrial Average is up 51 points as of 1:50 p.m. EST, coasting comfortably above the 14,100 mark. A significant portion of the day's gains come from the telecom industry, where the two blue-chip Dow representatives just had their favorable status quo reinforced.
Verizon climbed 1.1%, and AT&T added 1% to its value. But it's not as if Ma Bell and Big Red went out of their way to make these jumps happen. Rather, the American telecom industry just sagged a little bit around the two giants' feet.
Prepaid-cellphone specialist Leap Wireless recently added the Apple iPhone to its product portfolio. The move was expected to boost Leap's fortunes, because many customers have left its Cricket service in search of a service provider that sells and supports the iPhone. But Apple didn't turn out to be quite the panacea that Leap had expected.
The company recently reported fourth-quarter results, losing another 200,000 subscribers despite the new iPhone offering. Today, analysts finished digesting the numbers and came away convinced that unsold iPhones and a large contractual commitment to Apple will add up to big trouble this summer.
The grand experiment of doing away with large up-front subsidies in exchange for lower monthly subscriber fees hasn't worked out so far. Consumers see not the long-term savings, but rather an immediate sticker shock -- and back to the traditional providers they go.
That's not only a small boon for AT&T and Verizon as they absorb some of the failed Cricket sales, but also a vote of consumer confidence in the subsidized model. Leap sank 3.5% on this analysis, which also boosted the Dow-bound telecoms.
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The article How Telecoms Lifted the Dow Without Lifting a Finger originally appeared on Fool.com.Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders' bio and holdings or follow him on Twitter and Google+. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a covered bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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