Telecommunications is a tricky field with high operating expenses that can leave companies drowning in red ink. While providing service to phone users may appear as easy as allowing them to access a network, technological advancements and servicing new markets continually require a lot of capital.
Out of Verizon Communications Inc. (NYSE:VZ), Sprint Nextel Corporation (NYSE:S) and AT&T Inc. (NYSE:T), Sprint has a very different balance sheet than the others. One factor could explain continual net losses: a lack of international expansion.
Verizon Communications Inc. (NYSE:VZ) expands into Canada
The HTC One smartphone has already been available on AT&T, Sprint and T-Mobile since April. The first image of the Verizon Communications Inc. (NYSE:VZ) version of the HTC One was leaked on July 1 and on it reads the date “Sept. 5,” which has many people speculating that as the release date. Verizon Communications Inc. (NYSE:VZ) announced several weeks ago that the company would be offering an HTC at Verizon Communications Inc. (NYSE:VZ), but the firm didn’t say when. The release might be too late for profits, however, as HTC sales dropped 25% in June, compared to the same month last year.
But the company looks attractive due to its possible acquisition of Wind Mobile. Entrance into the Canadian market could lead to a heap of new customers in the nation with some of the highest monthly phone plans in the world. Ninety percent of Canadian telecommunications is owned by three companies, which means there is room for more. That could help increase the firm’s terminal growth rate, which is expected to be 1.25%.
AT&T Inc. (NYSE:T) expands into Europe
AT&T Inc. (NYSE:T) on July 2 initiated 35 new 4G LTE markets, and in an industry where ease of use is vital in attracting and maintaining clients, this progress helps solidify AT&T Inc. (NYSE:T) as a leader in the telecommunications sector. That brings the market count total to about 350.
I see somewhat likely growth for AT&T Inc. (NYSE:T) into the future. The company is considering making acquisitions in Europe, which is an area that still has room for advancements. And with the firm’s fair value is at $42.80, there is a 24% premium on price. That’s based on the company’s net income from 2008 to 2013 with a 3.18% weighted average cost of capital.
Sprint Nextel Corporation (NYSE:S) doesn’t look to be expanding
Sprint Nextel Corporation (NYSE:S) is facing a $300 million lawsuit from New York Attorney General Eric Schneiderman.
According to him, the company didn’t pay sales tax on cell plans, even after a Manhattan Supreme Court judge denied Sprint Nextel Corporation (NYSE:S)’s bid to toss the case out. Paying such a high fee will hurt the company, which has consistently operated in the red. Last year, the firm posted a net loss of over $4.1 billion. Unlike its two counterparts, Sprint Nextel Corporation (NYSE:S) hasn’t announced plans to make a push into international operations, and this could keep it at a loss.
The firm is making an effort, however, to launch the 4G LTE network by the end of the year. That would help the firm move into the 21st century. Sprint Nextel Corporation (NYSE:S) is in the process of shutting down its old-fashioned iDen network. The move will help accommodate long-term data growth. Once that is complete, the company can begin to ease up on operating expenses and potentially realize a profit within the next few years. However, Sprint is too much underwater to be an attractive purchase right now.
International expansion is key
Entry into new markets is a major component for these companies, as they are struggling to profit domestically. Verizon Communications Inc. (NYSE:VZ) will likely see success from entry into Canada if it is able to lure people away from long-term contracts that many Canadian telecommunications providers draw clients into. For AT&T Inc. (NYSE:T), a European entrance could be tricky, as current telecommunications providers there already offer their plans at a low rate. With so many people already happy with their current plans, it will be much more difficult to attract a large clientele. Unlike the other two companies, Sprint hasn’t announced major efforts to provide services outside of the U.S. This could further hurt the firm, and lengthen losses.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Which of these 3 Phone Firms Should You Avoid? originally appeared on Fool.com is written by Phillip Woolgar.
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