The growth of the smartphone and tablet device market in the United States, at first powered by Apple’s (AAPL) iPhone, is now becoming more competitive and driving significant valuation changes in both wireless carrier and wireless device stocks.
James D. Breen, of William Blair & Company, sees the rise of the smartphone as a squeeze on wireless carrier profits. “With the advent of the iPhone and the Google (GOOG) Android platform, really the handset providers are the ones stirring the pot with consumers and saying, ‘OK, here’s this new device, we’re going to give you this; here’s what you could do with it if the carriers improve their network quality.’ It phases a portion of the carrier’s full capex into the network and to upgrade speeds at the same time that they are forced to subsidize more expensive smartphones. So from a cash flow perspective, it’s a little bit of a squeeze.”
This wireless carrier cash squeeze in the United States could lead to more rapid valuation changes as bandwidth-rich, cash-poor companies become targets for larger rivals that have additional spectrum requirements.
Jonathan Chaplin, of Credit Suisse, recently said Clearwire (CLWR) is going to become bandwidth bait as the spectrum squeeze plays out: “Clearwire is the one company out there with massive amounts of unused spectrum, and we think that their spectrum is going to increase in value significantly as data demand increases,” he said. “AT&T is going to need more spectrum. T-Mobile is going to need more spectrum. Leap (LEAP) and MetroPCS, (PCS), who had planned to buy spectrum, need more spectrum. So it creates a tremendous amount of demand for Clearwire’s very scarce asset.”
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