AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) are the biggest telecommunications players this side of the Pacific. Previous years of investment and development in new technologies have paid off in a big way. The phone and telephone providers are paying out huge 4-5% dividends and have promising leads to keep growing revenue in the future.
Analysts have confirmed that this is what Hannah Montana was alluding to when she said “You get the best of both worlds.”
AT&T provides business and residential solutions, but the carrier has lost out on smartphone plan revenue to Verizon. AT&T is growing its 4G LTE wireless Internet service to compete, but Verizon has its own growth prospects as well. The broadband provider predicts big growth for wireless, broadband and cloud services. Verizon has also netted $1.34 billion in payments for government contracts – a continuing revenue stream.
It’s no different In China
On the other side of the pond, China Mobile Ltd. (ADR) (NYSE:CHL) has been doing its thing for years. The Chinese holding company has a 63% market share of mobile phones. It’s in a rival competition with another Chinese carrier, China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU), similar to the stand-off between AT&T and Verizon.
But here’s the problem: China Mobile Ltd. (ADR) (NYSE:CHL) has lost 11% of its market share since 2008 – with similar results for 3G Internet subscribers. Even while China Mobile Ltd. (ADR) (NYSE:CHL) has grown its revenue significantly since then, China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) is expanding even faster. China Mobile Ltd. (ADR) (NYSE:CHL) is starting to look more like the AT&T of China and slowly losing out.
But not quite
The telecommunications business is a lot like farming, oddly enough. There is a long period of sowing, and then a long period of reaping the rewards. Heavy investment in 3/4G and wired lines are paying off for Verizon right now. The key is to constantly have technology innovation and expansion, which China Mobile is definitely working on.
The Asian mobile carrier is spending 41.7 billion Yuan on developing its 4G network, and 27 billion on handset subsidies. It is also spending on fiber-optic installations to provide broadband Internet service. The company seems to be taking the best innovations of both AT&T and Verizon and combining them. I believe the results will be phenomenal. Solid growth in China, along with a competitive advantage of wired broadband and 4G will put market share back into the hands of China Mobile.
Solid growth, but no value
AT&T and Verizon are great companies with awesome growth prospects and renewed innovation. Even so, their current prices don’t justify them as investments. Verizon’s price relative to its earnings is 94, which is huge given that it is considerably tapering its growth forecasts for the coming years. AT&T’s acquisition plans and solid growth numbers in second quarter might justify its price-to-earnings ratio of 27 if its future projections weren’t so sub-par. The company holds a price-to-earnings growth ratio of 2.37, which is significantly higher than Verizon’s.
Bet on future growth, win now
China Mobile Ltd. (ADR) (NYSE:CHL)’s price-to-earnings ratio of 10.3 and 4.12% dividend provide a great opportunity to invest. The mobile carrier has well-established operations and solid growth prospects on the horizon. The company’s heavy investment in 2013 will certainly hurt its earnings per share in the short term, but the company doesn’t have much downside at this point. Grabbing China Mobile’s dividend while waiting for long-term progress is the best play I see in the telecom market right now.
The article China Mobile Gets the Best of Both Worlds originally appeared on Fool.com and is written by Ryan Gilbert.
Ryan Gilbert has no position in any stocks mentioned. The Motley Fool owns shares of China Mobile. Ryan 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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