Network Giants Still Better Positioned Than Smaller Rivals

Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Internet providers are always ballied about by the changing winds of consumer preferences, so it can be hard for investors to know which stocks are worth investing in. For me, I always look at staying power based on how long the company has been around, but also at how adaptable it can be when market conditions change overnight.

When one company acts, it almost always has a ripple effect for its competitors, whether it has exceeded consumer expectations, wildly disappointed them, or even just started them in a baffling new direction.

Good news for Sprint (NYSE: S) came from AT&T’s (NYSE: T) decision to put data caps on its unlimited use customers. Sources were predicting that AT&T Inc.’s disgruntled customers who enjoy mobile video streaming and other services, would switch to another provider.

This could have been the event that saves Sprint’s stock, which has been bouncing around in value since its dramatic drop last summer, but I think it would have taken a lot more good luck to have much of an effect. AT&T has been much more stable, showing a gentle rise over the course of the past year.

Even though it backed out of the policy change, my guess would be that the reason that AT&T felt confident enough to put limits on its users is because it has a stable financial footing, whereas Sprint looks to be a bit insecure. This insecurity is especially apparent to me through the company’s decision to sell $2 billion in notes. Half the debt will come due in 2017 and the other half in 2020.

The plan is to use the proceeds to upgrade its network and fund its partner Clearwire Corporation (CLWR). Sprint has lost money for the past five years, and shoveling on more debt looks like a desperate act for survival to me.

I would almost say that investors should not be wasting their time with this company anymore, as I can see it going belly up in the very near future. As for Clearwire, its stock has followed a path almost identical to Sprint. A comparison chart would have the two lines running jaggedly parallel, except that Clearwire has devalued even more harshly.

Larger rivals like AT&T and Verizon (NYSE: VZ) have much more potential in my mind, and they are acting like it. I do not expect to see these companies taking on more debt than they can handle, like Sprint seems to be doing.

Meanwhile, Dish Network (NASDAQ: DISH) has asked for the United States to grant it permission to offer a high-speed wireless network, but the Federal Communications Commission (FCC) might not be happy about this move, which would require re-writing the laws about certain wavelengths so as to remove some restrictions.

If Dish is not allowed to expand in this way, it could hurt its stock, in my opinion, especially since consumers in Texas are already upset with the company for not airing Fox programming in some regions. This hole in the network’s programming is due to a contract dispute between Dish and Fox about the price of the latter’s programming.

While Dish is struggling to expand, AT&T is giving money away, since it apparently has enough. The company recently donated $800,000 for scholarships so that children from low-income families in Tucson, Arizona can attend Catholic schools in that region. While this gesture implies confidence and will likely be viewed positively in that state, I believe that the selectiveness of the schools could actually work against this corporation.

There does not seem to be much point in making gains in one part of the market while alienating potential buyers in other areas.

What I am seeing is that, when it all comes down to it, if giants like AT&T are becoming so confident that they are beginning to make mistakes, smaller companies like Sprint and Clearwire do not stand much of a chance of recovery.

Investing in the smaller companies at this point would not be a good move, in my opinion, because I do not see them making any great strides. Instead, they just seem to be fighting to stay above water.

On the other hand, among the big companies, AT&T and Verizon seem like the only viable options. Verizon was recently recognized in a study as a leader in network quality and the company is constantly exploring new growth areas. The latest step is investigation into telematics services, which I believe will increase the stock’s value.

Although the networking sector is a bit more unpredictable than some other areas, AT&T and Dish have both had a stable growth rate, while Verizon has been a little rockier.

The bottom line for investors is to stick with the big guns for now, in my opinion. I would recommend that anyone who owns shares in Sprint or Clearwire begin cutting their losses, because I expect the situation to only get worse with this new debt the company has taken on.

In spite of their individual issues, AT&T and Verizon are not facing any major difficulties that should impact their stock negatively, whereas Dish’s future is a bit less certain at this point. With the FCC working to keep Dish from getting the waiver it needs for its wireless network, this company’s stock is a bit of a risk, in my opinion.

The brave could buy in now and possibly get a larger payout than those who wait and see which way things are going to go. On the other hand, if the deal does not go through, then I expect Dish’s value to decline.

That being said, I do not believe that this wireless network will make or break the company, since it is already well established in other markets.

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