Verizon Stock Vs. T-Mobile: Marketers dream of creating campaigns so successful that their taglines are woven into popular culture.
- Got Milk? (California Milk Processor Board),
- Just do it (Nike), and
- Where’s the Beef? (Wendy’s) are iconic.
Verizon had its own moment of marketing magic with television ads that ran from 2002 to 2011. The tagline “Can you hear me now?” remains part of the national lexicon to this day.
The concept behind the campaign was to highlight Verizon’s extensive coverage. At the time, mobile phones were primarily used for voice calls, and consumers selected their carrier based on the quality of these connections.
As mobile phones evolved into smartphones and other mobile devices, data speed became a priority for consumers. Browsing social media, using favorite apps, and connecting with loved ones through video chat requires fast, reliable data networks.
For years, Verizon held its place as the leader in nationwide coverage. Because users preferred its extensive network for its service in hard-to-reach places, they were willing to pay premium prices. AT&T did nearly as well – a close second – in terms of reliable data delivery. T-Mobile trailed along in third place, which meant it was forced to compete for market share through lower prices.
As long as Verizon led the industry in reliability and quality of coverage, investors were confident about buying in. However, the merger of T-Mobile and Sprint in April 2020 has put all of that into question.
The combined company is only half a percent away from overtaking Verizon on the reliability front, and that’s just for 4G service. When 5G is fully rolled out, the new T-Mobile will be well-positioned to take first place.
That means competition between Verizon and T-Mobile is about to heat up, and investors are scrambling to predict the winner in time to profit from this race to the top. In other words, Verizon vs T-Mobile stock: which is best?
Verizon Was #1 But Competition Is Heating Up Fast
Verizon has been hard at work preparing for the transition to 5G. From 2017 to 2019, the company invested nearly $18 billion per year in various infrastructure projects, which amounted to roughly 14 percent of its annual revenue.
The majority of these expenses were related to creating a far-reaching 5G network, and in early 2019, Verizon was the first to offer 5G in certain US markets.
For the moment, access to 5G service isn’t top of mind for consumers, but industry experts are projecting a major shift in coming months.
Apple is on the verge of releasing 5G compatible iPhones. When it does, demand for reliable 5G service will likely explode.
Among other benefits, 5G will make it possible to live in the world that science fiction writers imagined decades ago.
Virtual reality, enhanced artificial intelligence (AI), and new internet of things (IoT) applications will be part of everyday life – and that’s only the beginning.
The stunning speed of 5G data is expected to inspire invention of technologies that aren’t even on the public radar right now.
Given that Verizon, AT&T, and T-Mobile are the only three offering US access to 5G, there is a huge opportunity for growth over the next two years.
Some researchers expect the 5G market to see a compound annual growth rate of 43.9 percent worldwide. The challenge for investors is predicting which carrier will be most successful in harnessing the opportunities presented by 5G.
While there is no consensus on which of the three will lead in 5G service, most analysts agree that Verizon is in a solid position to deliver shareholder value.
The company plans to acquire Tracfone, a pre-paid mobile service provider, which means Verizon will acquire Tracfone’s 21 million customers.
It’s a smart move, considering that prepaid mobile users are the group most likely to move into traditional postpaid contracts. Outside of these folks, nearly everyone who wants a mobile device and needs a carrier has one.
Finally, Verizon is an attractive buy for income investors due to its reliable dividend. The current yield is 4.2 percent, which is substantially higher than the S&P 500 average of 1.8 percent. There is no indication that this dividend will disappear anytime soon, making Verizon an overall buy.
T-Mobile Is Poised To Seriously Compete With Verizon
For years, T-Mobile has ambled along behind Verizon and AT&T, content to attract customers by offering lower-cost service plans.
It wasn’t the best provider in terms of quality, reliability, and nationwide coverage, but plenty of consumers were willing to trade that for a reduced monthly bill and the option to purchase expensive iPhones at a deep discount.
The transition to 5G has spurred T-Mobile to action, and its previous strategy of competing on price alone may be gone for good.
The acquisition of Sprint means that T-Mobile is now positioned to offer the most extensive 5G coverage in the United States, which is huge – especially because T-Mobile says it still intends to keep plan pricing below the competition.
If T-Mobile can truly offer better service at a lower price, there is no doubt that even the most loyal Verizon and AT&T customers will start to explore their options.
The main downside to T-Mobile is that it doesn’t currently pay a dividend. That’s disappointing for income investors, but analysts agree that the company is making the right choice for now.
T-Mobile has less cash on hand than its peers, given its pricing strategy. Since the current priority is investing in 5G infrastructure, it’s not the right time to add the pressure of dividend payouts.
T-Mobile is poised to grow its business by leaps and bounds, both short-term and long-term. For investors who can live without a dividend for now, the growth potential makes T-Mobile a smart buy.
Risks Of Buying Verizon Stock
The biggest risk facing Verizon is competition. The combination of T-Mobile and Sprint has changed the game considerably, and Verizon can no longer be certain of maintaining its position as the number one carrier for reliable nationwide service.
That’s a problem, because Verizon customers have historically been willing to pay premium prices for better service. The extra cash has been critical to Verizon’s investment in new infrastructure.
When the higher bills don’t offer any special benefits, customers are likely to explore alternatives. That means Verizon may be forced to consider more competitive pricing, which will require a complete overhaul of financial strategies.
That, coupled with Verizon’s lackluster stock growth over the past 10 years, gives some analysts cause for concern.
Dangers Of Buying T-Mobile Shares
On the T-Mobile side, the biggest concern among investors and analysts is whether the company can deliver on the expectations set for its merger with Sprint.
The combined company projected massive cost savings as a result of eliminating redundancies once the two organizations become one. Successfully achieving those savings is important, because T-Mobile took on a lot of debt to make the merger happen.
At the end of June, its balance sheet showed a total of $72.5 billion outstanding.
Of course, there is no reason to worry just yet. For the moment, there are no signs of trouble as the two organizations work towards integration.
Assuming all goes as planned, there is every reason to believe that T-Mobile can pull ahead of its peers to become the leading 5G carrier.
T-Mobile Vs Verizon Stock: The Bottom Line
The bottom line is that both T-Mobile and Verizon are in a solid position to deliver shareholder value in coming years. There are only three players in the 5G market, so barring some sort of catastrophe, all three are likely to grow profits.
The decision between T-Mobile and Verizon really comes down your personal goals. If income is a priority, Verizon is the better choice. If you are more focused on increasing the value of your portfolio, T-Mobile has the edge.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.