Verizon’s new plan: Shoppers win, traders lose

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Inside Verizon's device testing lab

Verizon has introduced again its limitless knowledge plan. That is nice in case you’re a Verizon buyer. However it’s horrible information for its traders.

Verizon (VZ) inventory fell almost 1.5% in early buying and selling Monday. It is now down about 10% up to now this yr, making it the Dow’s worst performer of 2017.

Verizon’s transfer is a transparent signal the corporate has to drag out all of the stops to stay aggressive with wi-fi rivals AT&T (T), Dash (S) and T-Cellular (TMUS).

“In latest months, each T-Cellular and Dash had some success taking further share from Verizon by advantage of their limitless choices,” wrote Morgan Stanley analysts in a report Monday morning.

That will clarify why shares of T-Cellular and Dash, which is now managed by Japanese tech conglomerate SoftBank, are each up this yr whereas Verizon is down. T-Cellular and Dash have additionally been perennially linked as doable merger companions.

However the brand new telecom value conflict is not the one downside for Verizon.

AT&T just lately acquired satellite tv for pc broadcast supplier DirecTV, a transfer that makes Ma Bell extra aggressive in opposition to Verizon within the battle to manage individuals’s dwelling rooms. Verizon provides its personal FiOS broadband TV service.

Associated: Verizon brings again limitless knowledge plans

And AT&T can also be making a a lot larger wager on content material, with plans to buy CNN’s dad or mum firm Time Warner (TWX). Verizon already owns AOL and is trying to purchase the core belongings of Yahoo to bolster its personal digital content material choices.

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However the Yahoo (YHOO) deal may crumble within the wake of revelations of huge knowledge breaches at Yahoo over the previous few years.

Yahoo just lately mentioned it hopes that the cope with Verizon will shut within the second quarter of this yr. It was initially alleged to be finalized by the primary quarter.

Nonetheless, in its newest earnings launch, Verizon merely mentioned that it “continues to work with Yahoo to evaluate the impression of knowledge breaches” — not that it anticipated the deal to shut anytime quickly.

Verizon has loads on its plate, which may very well be making traders nervous. Along with the Yahoo deal, the corporate can also be within the course of of shopping for the fiber optic community of XO Communications. And it is promoting its knowledge middle enterprise to Equinix (EQIX).

There even have been rumors previously few weeks that Verizon would possibly even take into account shopping for cable supplier Constitution Communications (CHTR).

That could be greater than Verizon can realistically deal with proper now. However nothing could also be off the desk for Verizon given how aggressive the wi-fi world is lately.

Something that would give Verizon a leg up on AT&T, Dash and T-Cellular could be doable.

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Nonetheless, it is price noting that shares of AT&T are decrease this yr too, down about 5%. And Verizon and A&T have one thing in widespread that Dash and T-Cellular lack — Verizon and AT&T pay gigantic dividends.

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Firms which have massive dividend yields have not fared as nicely since Donald Trump was elected. Traders are betting on a large stimulus package deal from him and the Republican Congress, which can be fueled partially by debt.

That is induced bond yields to rise — and that makes shares of huge dividend payers like Verizon loads much less engaging.

The Federal Reserve is predicted to boost rates of interest a number of occasions this yr too. That would push bond yields even greater.

So Verizon faces many massive challenges that would damage its inventory this yr.

That is why Verizon, nicknamed Massive Purple due to its brand’s crimson hue, may even see its inventory within the crimson for the foreseeable future.

CNNMoney (New York) First printed February 13, 2017: 11:27 AM ET

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