Here's Why Telecom Stocks Are Holding the Dow Back Today

Telecommunications giants Verizon and AT&T are two of the worst performers on the Dow Jones Industrial Average today. Verizon shares plunged as much as 0.9% overnight, and Ma Bell topped that with a full 1% drop. The Dow itself lost its early job-market gains but never dropped far below breakeven in intraday trading.

The virtual duopoly of wireless communications didn't actually do anything to deserve this drop. You can blame it all on a far smaller competitor showing some muscles early this morning.

Shares of fourth-largest mobile network T-Mobile USA jumped as much as 8.2% overnight thanks to a very strong earnings report.

Magenta added 1.1 million customers in the second quarter, selling 4.3 million smartphones along the way. The customer surge is an organic number that did not include the 8.9 million subscribers T-Mobile acquired in the recently closed MetroPCS deal.

Compare that to Verizon adding less than 1 million new subscribers, and AT&T reporting just 632,000 additions. It's easy to see why investors in the big telecoms might feel queasy today.

Combined sales jumped 7.9% year over year, including MetroPCS' stand-alone numbers in the year-ago figures. T-Mobile pins some of this organic success on the Apple iPhone, which became available at T-Mobile in April. The iPhone is a well-known growth driver for whatever telecoms get their paws on the hot handsets, but Cupertino was actually not the biggest catalyst behind these results.

Instead, management points to innovative new service plans as the main catalyst. "By fixing the things that drive [consumers] mad, like contracts and upgrades, and freeing them from the two-year sentences imposed on them by our competitors, they are choosing the new T-Mobile in unprecedented numbers," said CEO John Legere.

John Legere talks a big game. Today, he backed it up with solid results. Image source: T-Mobile.

And that's why T-Mobile's success becomes an albatross for AT&T and Verizon. The Dow members may have to follow suit as T-Mobile and other rivals simplify their service plans, because consumers will start to expect these kinds of plans.

Change is always difficult, especially when it's forced upon you by a nimbler rival like T-Mobile. So Verizon's and AT&T's shareholders are taking a step back today to see how the coming changes might impact their holdings.

And Legere smells serious change in the air. "We're taking customers from AT&T at a ratio of two to one," he said in a CNBC interview. "They're in complete fight-back mode, and I find it more humorous every day." Oh, the irony.

The wireless industry has always been a fast-moving market, but the change is only getting quicker as the industry matures. T-Mobile is doing its part to keep investors on their toes.

One company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

The article Here's Why Telecom Stocks Are Holding the Dow Back Today originally appeared on

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 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.