There was a time when telecom providers were relatively insulated from the markets' fluctuations. AT&T, the old Ma Bell that is, was known as the proverbial "widows and orphans" stock because it was so dependably steady and returned predictable dividends.
Um, not so much anymore. As the chart below shows, the new competitive telecom environment has fostered companies that can rise and fall with investor sentiment. Every single major publicly traded U.S. fixed or mobile carrier has seen its stock price fall by over 33% over the past year, with three (Sprint, Qwest and Fairpoint) plummeting by over two-thirds.
Verizon's stock slipped about 34% and AT&T's stock fell by 36% from October 8, 2007 to October 6, 2008, roughly on par with the declines in the Dow (-29%), S&P (-32%) and the Nasdaq (-30%), and these two telcos are arguably the most influential and important of all. I have done a market cap analysis, but it's probably fair to say that the overall value of the telcos' has declined more or less in line with these decreases.
Perhaps equally important to phone companies (and even more so cable companies) is the ability to gain access to the credit markets and we won't know if phone companies are getting hammered in this regard until the next round of earnings calls, due to start next week. With shrinking market caps and possible credit market issues, telcos are going to have a hard time laying out dough to build new networks or launch capital-intensive services unless the picture brightens soon.
The upside for phone companies: in such a weakened financial state, and with competition plus the recession looming over everything, Washington is bound to stay friendly, particularly if the election ushers Obama into the White House. The Democratic candidate has made pushing broadband into underserved markets a priority and the telcos (and possibly cable operators) can rightly say that if they ever had the cash to do something like that, they certainly don't now.
Cynthia Brumfield at 11:07 PM|Comments(0)
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