Chunghwa: A Better Telecom Dividend Bet Than AT&T, Verizon
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In an age of global connection, it might seem like telecommunications companies hardly have to try in order to make profits. And yet, some succeed and some fail. Right now, internet neutrality is a hot issue for all providers, and the way AT&T (NYSE: T), Verizon Communications (NYSE: VZ), and others vote in the upcoming moment of truth is bound to strongly affect how consumers and investors alike perceive respective companies.
I expect to see consumers turn away from companies that support limits on the internet, while investors might hope that such limits will make them wealthier. This puts telecom companies in an awkward position, since optimizing profits might actually have the reverse effect, as charging for premium content leads to dissatisfied customers. Unfortunately, it looks like Verizon is already making bad decisions based on this type of dilemma.
Recently, Verizon announced that customers purchasing its high-speed service must also add in a landline. DSL will no longer be available on its own. I find it hard to imagine what might have convinced this company that this combination of services is a good idea. Since most people with phones do not have landlines, this technology is slipping away into the irrelevant, in terms of profitability, in my opinion. Clearly, the people at Verizon have decided to bring it back, in what looks to me like a desperate attempt to manage costs that have spiraled out of the company’s control. For investors, this means that Verizon’s upward trend is about to switch directions.
The real question is if the stock will be able to recover. The biggest growth endeavor that Verizon has engaged in recently is to bring its 4G network to Salisbury, Maryland. While this is not a bad idea, it hardly seems like an adventurous or meaningful step towards expansion. AT&T appears to be having similar trouble coming up with new ideas, as it sells off a majority stake in its Yellow Pages business. This strategy does show that AT&T gets the market much better than Verizon appears to, in my opinion, because the Yellow Pages are for fixed phones, which are gradually becoming obsolete.
That being said, AT&T stands on delicate ground as well. While the internet neutrality laws are being discussed, this company is also in negotiations with one of its unions that represents 40,000 workers. The union is calling for health benefits and pension security, as well as higher pay, which AT&T would be smart to offer. The United States economy is still uncertain enough that people with jobs represent industry’s best bet for consumers, so I think it would be wise to make sure that these people can afford the products they help produce. Also, if the union decides to strike, not only will the company lose production time, it will also make a lot of supporters very angry, I expect.
While AT&T is fighting with its workers over job risks, Chunghwa Telecom Company Ltd. (NYSE: CHT) is getting ready to hire on more, with an 8% increase of its workforce this year. These extra workers will be placed in cloud computing, sales and customer service, according to CEO Shyue-ching Lu. To me, this says that Chunghwa Telecom is confident in its growth potential. While bringing in additional workers means higher costs to the company, I do not see this company throwing money at anything that won't provide much revenue, in the way that AT&T and Verizon seem to be.
Recently, consumers in Taiwan have been upset with what they see as Chunghwa Telecom’s high fees for low-speed internet. The government looks like it is poised to pass an amendment that will force companies to provide accurate information about their services, as well as to share the network with other telecom carriers.
In the face of these potential setbacks, I would argue that Chunghwa Telecom is a stock worth considering at this point. As AT&T and Verizon scramble for profits, I see this company steadily moving forward. One of its latest innovations is an upgrade its IPTV and multi-screen through the assistance of Verimatrix. Apple is out already out of reach of many investors, since its boom happened years ago, but I believe that Chunghwa Telecom could be one of the next big things.
The main reason that I believe this to be the case is that this stock has been sliding down while the others rose. Now that it seems likely that AT&T and Verizon are running into trouble, I expect Chunghwa Telecom to step up to the plate. Based on its reactions to change and its ability to recognize what is going on in the market, unlike Verizon, for example, Chunghwa should be able to take full advantage of the gaps left in the market by its competitors.
For investors, this change in the scenery could mark the beginning of a new era. Unless Verizon can figure out what it needs to do to stay on top – which is probably not to force consumers to buy outdated technology – and unless AT&T can sort out its income streams without overspending or creating crushing debt for itself, I think that Chunghwa has a very good chance of pulling ahead in the telecom industry in the next couple of months.
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