AT&T Inc. (T), Verizon Communications Inc. (V)…What’s Going on in the Telecom Industry?

The telecom industry is going through the initial stages of a major transformation. The shift of computing to handhelds and texts/calls to smartphone applications is steadily revolutionizing this space.

According to recent news, there might also be some major consolidation ahead in the telecom sector, with AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) targeting a buyout of British telecom giant Vodafone Group Plc (ADR) (NASDAQ: VOD). Verizon has denied the rumors for the time being, but consolidation will eventually take place sooner than later. I believe that the telecom space is getting more interesting and any M&A news will present a buying opportunity.

Changing dynamics

The telecom industry has seen phenomenal growth in the last decade due to the rise in popularity of handheld devices. The carries have always held the power to call the shots in this industry. In the last few years, this power had changed hands due to the rise of smartphone ecosystems. Not long ago, the only criteria of a cellphone purchase were the hardware and design of the device. This made the device manufacturers somewhat dependent on carriers to offer display space to promote the latest models.

The recent rise in smartphone ecosystems has transferred this power from carriers to developers and operators of these ecosystems. Google Inc (NASDAQ:GOOG) currently has the largest smartphone/tablet ecosystem in the world, and is closely followed by Apple Inc. (NASDAQ:AAPL)’s iOS.

The high demand for Apple devices allows the company to dictate terms with carriers. That is the very reason that iPhones and iPads are sold at very high subsidies, as companies cannot afford to lose network subscribers to the competition. The increased usage of smartphones and tablets with cloud-based applications has also shifted the industry focus on data. Therefore, the carriers with the best data packages and 4G capabilities will come out on top in the long run. Verizon Communications Inc. (NYSE:VZ) is the leader in this regard and presents a buying opportunity for long term investors. AT&T Inc. (NYSE:T) is lagging behind in its 4G offerings and can suffer in the long run with customers migrating to rivals.

Industry

As previously mentioned and according to a recent report by Financial Times’ blog Allphaville, Verizon and AT&T Inc. (NYSE:T) are looking to buy the European telecom giant Vodafone. Vodafone currently owns 45% of Verizon Communications, and the American giant has thus far failed to acquire the stake from Vodafone.

Reports indicate that Verizon and AT&T are jointly trying to buy the British giant with a mammoth price tag of $245 billion. Verizon would get its 45% share from this deal, while AT&T would control the remainder of Vodafone’s assets. Vodafone currently has operations in a number of countries, including but not limited to Spain, Italy, Greece and India, as well as Great Britain.