Game of Phones

Will the phone wars ever stop?

Comcast plans to buy Time-Warner Cable. Vodaphone sold its Verizon Wireless holdings and bought a German cable company. AT&T is close to purchasing DirecTV; Sprint may buy T-Mobil. Tens of billions of dollars are sloshing around. What’s going on?

Increasingly, people expect to watch streaming video wherever and whenever they want on whatever device they have. Providing wireless, cable, landline, and internet in one package reduces billing costs, and increased size means better negotiating power with phone-makers, government officials, and other wireless providers over connections and roaming costs. What’s not to like?

Well, increased concentration can raise antitrust issues. There aren’t a lot of telecom providers. The Justice department blocked a proposed AT&T/T-Mobile deal a few years ago because it would limit competition. If one or two players dominate an industry, innovation suffers and consumers are hurt.

Telecom may be a small part of the economy, but there’s a lot of money at stake in a critical industry. Investors need to be careful: it’s easy for managers to overreach. As Shakespeare said, “Wisely and slow—they stumble that run fast.”

Douglas R. Tengdin, CFA

Chief Investment Officer

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