Apple Inc. (AAPL), T MOBILE US INC (TMUS): Your Cell Phone Isn’t Free

AT&T Inc. (NYSE:T) has been playing catch up with Verizon for several years. Its shares reflect the difficulty it’s faced, as its around 5.1% dividend yield is almost a full percentage point above the yield on Verizon’s shares. And, as AT&T is dealing with competition from Verizon, it is also fighting off smaller players, like T-Mobile, from below.

Not willing to cede ground, AT&T Inc. (NYSE:T) has started to mimic its smaller brethren. For example, it is shifting the cost of cell phones onto customers for the privilege of avoiding a contract. Sales were down sequentially and year-over-year in the first quarter, so investors are right to be concerned about AT&T’s future.

However, it appears that the aggressive sales push will lead to a reversal of that trend in the second quarter. The company, which just bought Leap Wireless will work hard to keep the momentum positive. In fact, AT&T Inc. (NYSE:T) is probably the best option in the cell space right now for income investors based on the likelihood of improved results and its long history of annual dividend increases.

What About Apple?

The problem in all this for Apple Inc. (NASDAQ:AAPL), and other manufactures like Samsung, is the changing dynamic with regard to phones. As more and more cell companies try to shift the cost more blatantly onto customers for competitive and profit reasons, the more obvious it becomes that cell phones are expensive.

Slowing innovation added to what will appear to customers to be increased costs will lead to even longer upgrade cycles. Customers will have to question the benefit of a new phone if the old one still works just fine. Although Apple’s price appears to reflect this issue already, it is one that investors need to watch closely. How the company deals with it could be the difference between just collecting a dividend and capital appreciation.

The article Your Cell Phone Isn’t Free originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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