What's Wrong With Verizon Communications Inc. Today?
Verizon Communications is one of the worst performers on the Dow Jones Industrial Average today. On a mildly gloomy trading day, the telecom sits among the bottom five Dow stocks, nursing a 1.2% haircut. The Dow itself was down about 43 points as of 12:38 p.m. EDT, and Verizon accounted for four of those negative points all by itself.
So what's wrong with Big Red today?
The big news in telecom today comes from Sprint , whose Japanese chairman Masayoshi Son wants to make a big splash in the American market.
The founder, chairman, and CEO of Sprint parent SoftBank made his billions by shaking up the Japanese market for mobile services, and he's taking that approach to Sprint as well. But he'll need some help to get it done -- and that prospect should scare Verizon's investors.
In an interview with PBS talk show host Charlie Rose, Son said he wants to take on the Verizon and AT&T duopoly with his own megacarrier of comparable size.
First, regulators must let him acquire fellow mini-major T-Mobile and its 47 million subscribers (Sprint boasts 54 million) to give the new entity the required economies of scale.
Then the gloves will come off.
"We need a certain scale, but once we have enough scale to have a level fight, OK," Son told Rose. "It's a three-heavyweight fight. If I can have a real fight, I go in a more massive price war, a technology war."
Regulators worry that combining Sprint with T-Mobile would create less competition rather than more, because there would be fewer nationwide networks. Son would argue the opposite, because you would have three giants of roughly equal scale, and it would be a fair fight rather than two giants trampling on the ants around their feet.
And Son would be perfectly willing to forget about profits for a few years, taking a big price war to the American market. Verizon and AT&T would have to adjust to a third peer undercutting them at every turn, or suffer the consequences as users start fleeing to an obviously less expensive option.
Moreover, Son noted that America has the world's largest market for mobile broadband, but that current services are both expensive and slow by international standards. In a separate interview with CNBC's Squawk on the Street, Son said that Japanese mobile broadband users can get up to 60 megabits per second out of their mobile connections. Americans typically have to settle for 20 megabits. Son's SoftBank is testing connections of more than 700 megabits in Tokyo, and there's a 200-megabit solution ready to roll -- if Sprint gets to merge with T-Mobile first.
"America is the only country that post-paid contract prices are going up," Son told CNBC. "All the rest of the world, prices are going down."
If Son can bring this vision to reality in America, Verizon and AT&T will indeed have a hard time supporting their rising plan costs.
But again, Son contends that he needs the resources of T-Mobile to make all of this happen -- and that's not an easy slam-dunk win.
"You think you can win that argument?" asked CNBC's David Faber to close out that interview.
"I don't know. I don't know," Son replied. "I'm just throwing the stone into the pond, right? I'm just making a wake-up call."
Verizon investors heard Masayoshi Son today. AT&T shares also fell 0.9%. Meanwhile, Sprint shares jumped 1.4% higher and T-Mobile is up 2.2%.
Will Masa win, lose, or draw? Doesn't matter -- this smartphone stock walks away a winner either way!
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The article What's Wrong With Verizon Communications Inc. Today? originally appeared on Fool.com.Anders Bylund 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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