Wireless Stocks Drag on the Dow

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It started as a cheerful day on Wall Street, but near the end of trading the Dow Jones Industrial Average  fell back to a paltry gain of less than 10 points, while and the S&P 500 was up only 0.11%. Today it was reported that the Case-Shiller Composite 20-City Home Price Index rose 12.2% from a year ago, but traders have their eyes focused on tomorrow at the moment. A GDP report is due out, and the Federal Reserve will complete a two-day monetary-policy meeting as well. The market is waiting breathlessly to hear about the timing of a slowdown in the Fed's asset purchase program. 

Two of the Dow's big movers today are Verizon and AT&T , down 2% and 1.1%, respectively. The big news was Sprint's earnings yesterday afternoon, which showed a small rise in revenue but a net loss of $1.6 billion during the quarter. The company also lost 1 million contract customers, many of whom have defected to either AT&T or Verizon. So why are the two wireless giants down today?  

Sprint's results weren't so bad as some expected, and after Nextel's push-to-talk network was shut down, there's hope that the company can grow in the coming year. CEO Dan Hess thinks this quarter will see more customer losses because of the Nextel closure, but the Sprint platform will continue to grow subscribers and revenue as its footprint increases.


The wireless industry has essentially developed into a duopoly, with Verizon and AT&T controlling the industry and Sprint and T-Mobile nipping at the big dogs' heels. The larger carriers can steal customers by offering superior networks, and Sprint will have to spend billions to catch up in that area.

It's possible that Sprint will turn around subscriber defections, but it may have to do so by competing on price, which will squeeze margins and make the necessary network improvements less profitable. In any case, I think Verizon and AT&T are the safer bets, and with their respective dividend yields of 4% and 5.1%, they'll pay investors handsomely just to own the stock. It may be Sprint's day in the sun, but the company has a long road ahead to catch up in the wireless business.

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The article Wireless Stocks Drag on the Dow originally appeared on Fool.com.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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