Free Text Messaging: A Major Problem for Telecom Companies?

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(List compiled by Becca Lipman. Data sourced from Finviz.)

Remember the days of expensive and limiting data plans? When calling out of state cost big bucks? And forget about international calls, who had that kind of money? Oh, how things have changed…

Popular programs like Skype allows for free face-to-face calls all over the world, while cell phones have conquered national long-distance fees. The new frontier: Text messaging fees.

For now, text data plans mean customers can text their thumbs to the bone for one fixed monthly cost, while for others a $10 for 1,000 texts per month plan will do just fine. Alas, even that cost is destined to disappear. Free is the operative word, and companies are lining up to provide you with their free and unlimited texting services. The days of texting plans are numbered.

To name a few contenders on the free-texting market, there's Apple's upcoming iMessage service, Facebook's new Messenger app, Google Voice, WhatsApp, and TextNow app. "In addition to free apps, the growing popularity of smartphones — which can handle both email and texting apps — are dimming text messaging's future as a profit center." (via LA Times)

Facebook's smartphone app called Messenger, and Apple's iMessage service (available on iPhones and iPads) are expected to be the biggest contributor and game changer of the free-texting movement.

This is much to the chagrin of AT&T, Verizon, Sprint and T-Mobile, who reap large profits (approximately $21-23 Billion annually), from texting plans.

Most companies have yet to react to the threat to their profit margins. However one notable defensive measure came from AT&T, a telecommunications company ill content to stand on the sidelines: Their response has been risky - canceling their $5 and $10 plans that allow new customers 200 and 1,000 texts a month respectively. New customers now choose between pay-per-message or higher cost plans.

Interestingly, this begins to make smartphones, which generally have pricier data plans, look comparatively cheaper for even the most casual texter.

Will AT&T's defenses protect their profit margins or will media powerhouses Apple, Google, and Facebook successfully make texting plans a thing of the past?

Interested in trading on this idea? To help you analyze the free texting trend's effect on the markets we list below the companies most affected by this change. 

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1. Access a thorough description of all companies mentioned
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1. Apple Inc. (AAPL): Personal Computers Industry. Market cap of $330.45B. Current price at $356.44. On Monday June 6th, Apple announced iMessage, a new messaging service for iOS 5 users. The app provides a pseudo text messaging between iOS users on iPod touch devices, iPhones and iPads. Might be undervalued at current levels, with a PEG ratio at 0.68, and P/FCF ratio at 11.36. It's been a rough couple of days for the stock, losing 7.03% over the last week.

2. Google Inc. (GOOG): Internet Information Providers Industry. Market cap of $160.85B. Current price at $498.17. The stock is currently stuck in a downtrend, trading -12.91% below its SMA20, -8.63% below its SMA50, and -12.87% below its SMA200. It's been a rough couple of days for the stock, losing 10.6% over the last week.

3. Sprint Nextel Corp. (S): Wireless Communications Industry. Market cap of $9.76B. Current price at $3.26. The stock is currently stuck in a downtrend, trading -15.93% below its SMA20, -30.94% below its SMA50, and -29.6% below its SMA200. It's been a rough couple of days for the stock, losing 6.32% over the last week.

4. AT&T, Inc. (T): Telecom Services Industry. Market cap of $168.59B. Current price at $28.45. AT&T took defensive measures by discontinuing $10 texting plans for new customers. Relatively low correlation to the market (beta = 0.63), which may be appealing to risk averse investors. The stock has gained 13.66% over the last year.

5. Verizon Communications Inc. (VZ): Telecom Services Industry. Market cap of $98.56B. Current price at $34.82. Relatively low correlation to the market (beta = 0.62), which may be appealing to risk averse investors. The stock has gained 24.89% over the last year.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: AAPL , GOOG , S , T , VZ

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