Verizon, AT&T Poised For Expansion


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attWhile the telecom giants share much in common, company executives are leading the providers towards separate areas of expansion.   Currently, each company holds one-third of wireless subscribers in the United States, and has made several recent acquisitions that will affect the future direction of each company.
Historically, Verizon and AT&T have made the majority of their profits with contracts designed to increase switching costs and reduce customer turnover. The stable cash flow provided by this type of contract enables each company to provide high payout ratios to investors – 82.2% from AT&T, 63.8% from Verizon – while their dividend yields are 4.5% and 4.2% respectively, twice the market average.
Although that line of revenue seems secure, Verizon has recently made several major acquisitions. Investor Place reports the most important of these are: 

  • $4.4 billion for AOL
  • $4.8 billion for Yahoo!
  • $2.4 billion for Fleetmatics, a vehicle software company
  • Undisclosed amount for Telogis, a connected vehicle company
  • Undisclosed amount for Complex, a pop culture site
  • Undisclosed amount for Volicon, digital video archiving, monitoring, and creation

The acquisition of these companies shows a focus on media content, as well as the Internet of Things. Speculators believe Verizon plans to invest heavily in connected cars, and providing media content to connected devices as the Internet of Things becomes more dominant. In short, Verizon plans to expand from “wireless provider to a wireless and content provider.”
On the other hand, Investor Place reports AT&T has made acquisitions in a very different direction. These are:

  • $2.5 billion for Lusacell
  • $1.9 billion for Nextel Mexico
  • $63.0 billion for DirecTV
  • Undisclosed amount for Quickplay Media

AT&T’s procurement of Lusacell, Nextel Mexico, and DirecTV indicate a focus of expansion in Latin America. Lusacell and Nextel Mexico are significant mobile providers in Mexico, and DirecTV has large holdings in Latin America. The new geographic region will allow AT&T to develop in a new market, but without forcing the company to add new services.
These differences will allow both companies to expand, without fighting over the same customer base, which will make it a strong choice for investors.