4G LTE is quickly becoming the new standard for wireless communications. 4G LTE is significant for wireless carriers because it offers speeds that are over ten times faster than the old 3G technology.
Is bigger really better?
So Verizon Communications Inc. (NYSE:VZ) is running far ahead in the LTE race, but what about the other giant in the telecommunications industry? AT&T Inc. (NYSE:T) is also getting into LTE.
Chart data provided by Rootmetrics, via this source
While Verizon Communications Inc. (NYSE:VZ) held over 3.5 times more LTE markets than AT&T Inc. (NYSE:T) as of a March study done by research firm Rootmetrics, AT&T is not only faster, but is also expanding its own LTE coverage aggressively. Verizon Communications Inc. (NYSE:VZ) has the breadth, while AT&T Inc. (NYSE:T) has the speed. AT&T’s network has now been the fastest two years in a row, in fact. Currently, 30% of the company’s smartphone users utilize LTE.
Then there’s the small guys…
After beginning to sell the iPhone 5 in April, which has the capability to fully utilize LTE, T MOBILE US INC (NYSE:TMUS) also began to roll out LTE technology of its own in the same month. The LTE offering is currently only available in seven U.S. cities and hasn’t been tested for speed yet because of its relative newness, but shows that the company is committed to offering true 4G technology. The company’s CTO also has confidence in the fast-moving pace at which the company is expanding its new LTE offerings, stating that:
“T-Mobile’s 4G LTE network rollout is moving at a speed that’s unprecedented in the U.S. wireless industry–we’ll go from seven metro areas today to nationwide by the end of the year, with many major metros launching next month…”
The company also currently has its HSPA 42 services, which is faster than 3G and labeled as 4G by T MOBILE US INC (NYSE:TMUS), which can be utilized by its customers until the “true 4G” LTE is completely rolled-out. T MOBILE US INC (NYSE:TMUS) is smart for expanding into LTE and getting the iPhone 5 now, as it will leave them much better placed in the future — as opposed to being completely left behind, running just to play catch up to competitors.
If HSPA is indeed counted as 4G, T MOBILE US INC (NYSE:TMUS)’s coverage looks very good — which is a huge positive because it will help ease its customers wait for the LTE technology until it comes online completely.
Like T MOBILE US INC (NYSE:TMUS), AT&T Inc. (NYSE:T)’s LTE-laced smartphones can also run on HSPA technology if LTE is not available.
“The study found LTE signal in six markets that haven’t launched, and solid speeds in markets where we have… We are not done yet and expect that our customers will benefit from additional improvements as the work progresses.”
Rootmetric’s study from March also found Sprint Nextel Corporation (NYSE:S) in the slow range, but the company seems to have added many more markets since then as well:
Chart data provided by Rootmetrics, via this source
The bottom line
As of now, the two largest are the two leaders, and probably the safest bet for investing in the future of the wireless communications industry that is 4G LTE. While both AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) carry sky-high P/E ratios and payout ratios as of now, these are largely attributed to temporary, one-time items that caused earnings to drop off a cliff — thus masking both firms’ more normalized earnings power.
For this reason, I will value these firms going forward. AT&T is trading at a reasonable 13.5 times forward earnings, with Verizon Communications Inc. (NYSE:VZ) trading at about 16 times its annual estimated earnings going forward. While AT&T is cheaper going forward, it also offers a higher dividend as well, yielding almost 5%, as opposed to only around 4% for Verizon. Both companies also claim a payout ratio around 70% when considering forward earnings.
If you believe that both firms will be able to either match or come close to their current expectations regarding forward earnings, then both firms make for solid bets on the next generation of wireless technology, as well as decent high-yielding dividend payers. AT&T Inc. (NYSE:T) is cheaper, but Verizon has grown its dividend at a faster rate over the past five years. It’s up to the individual investor to determine which (if not both) compliments their portfolio the best.
The article Investing in Telecoms and Their 4G Future originally appeared on Fool.com is written by Joseph Harry.
Joseph Harry owns shares of AT&T.; The Motley Fool has no position in any of the stocks mentioned. Joseph 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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