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Who will be the winners as Big Telecom prepares for a price war?
Credit Suisse downgraded the telecom sector on a weakening economy and a possible price war that could hurt profits as AT&T and Verizon gear up to offer $99.99 per month unlimited calling plans. But CNBC’s Dennis Kneale thinks the telecom giants are playing it just right.
The plans announced by Verizon [VZ
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] and AT&T [T
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] amount to a price increase, he said, not a price war. The average wireless monthly user bill is $55. Charging almost double that for unlimited minutes will amount to higher revenue for the carriers, not lower.
And perhaps even more importantly, the big growth is in wireless data, according to Kneale. Even with these new packages, users will still have to pay up for more data – essentially every extra megabyte people use to send messages on their Blackberry or iPhone is still going to cost them.
So as the stocks took a beating in Wednesday’s trading, Kneale thinks the market overreacted and got it wrong. Wireless is still only a relatively small portion of revenue for these huge telecom companies, he said.
Jeff Macke mentioned that a lot could still ride on Sprint’s (remember them?) decision to do something crazy. The number-three U.S. carrier is widely expected to announce a lower pricing plan that would undercut the moves by AT&T and Verizon. Jeff called Sprint [S
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] a “lunatic in the form of a dying company” and wouldn’t deny the possibility that it could adopt a slash-and-burn mentality to pricing that could destabilize the entire wireless sector. He would rather continue to play the overall sea change of a wireless world by buying device makers like Nokia.
Taking a different approach, Tim Seymour said the growth in emerging markets with regard to wireless greatly outdoes any revenue growth the domestic carriers will see. And because the technology tends to leapfrog itself, fixed-line telecom companies in the developing world could be on their last legs, making the wireless carriers even bigger players. NII Holdings [NIHD
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], China Mobile [CHL
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] and American Movil [AMX
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] should get the job done for the emerging markets wireless trade, Tim said.
Read More:
> Find out what Standard & Poors analyst Todd Rosenbluth had to say about wireless wars on CNBC's Closing Bell.
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Trader disclosure: On Feb.20, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (HAS), (YHOO), (ATVI); Finerman Owns (GS); Fineman's Firm And Finerman Own (KALU); Finerman's Firm Owns (MSFT), (TSO), (VLO), (YHOO), (AAPL); Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM),(COF); Finerman's Firm And Finerman Own (CROX) And (CROX) Options; Finerman's Firm Is Short (LEH) And Owns (LEH) Puts; Seymour Owns (AAPL), (MER), (MSFT), (S), (TSL); Seygem Asset Management Owns Gazprom OAO; Seygem Asset Management Owns (NIHD), (GFI); Seygem Asset Management Owns Lebedyanskiy OAO; Seygem Asset Management Is Short (EEM)
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