Verizon on the Horizon: Time to Dump Bell?!

I find the stock market fascinating to watch. It’s like a giant psychology experiment being broadcast simultaneously on radio, TV, websites and podcasts. Take this week. Verizon has made some clear steps towards trying to enter the Canadian mobile phone cartel, er, business. Immediately, the share price of Bell stock plunged off a cliff. What are the Sellers thinking? Is it really time to dump Bell?

CRTC Face Slap to Mobile Telephone Companies

Admittedly, Canadian mobile phone companies haven’t had a great spring. The CRTC is starting to get just how angry consumers are with the high cost of cell phone usage, especially data and roaming usage, in Canada as compared to other countries. They brought in some rather wishy-washy rules that will be implemented over the next year or so. These rules could reduce profits for the teleco’s.

The rules say things like “cell phone carriers must unlock a phone if asked.” The rules don’t actually say they must unlock the phone for free.

Service Providers must stop locking in customers to three-year contracts. But they don’t actually say the price can’t go up on the new maximum two-year contracts.

The rules say customers can’t be charged more than a certain amount for roaming. But they don’t say the customer can get to keep making roaming calls for free. It appears the service provider can simply cut off coverage once the maximum spending level is reached.

You can see I’m a bit skeptical that the new rules will greatly reduce the profits made by cell phone and mobile data providers.

However, it sure looks like many investors are nervous about the changes. The price for BCE shares has been dropping steadily since part way through May. It’s down over $6 a share or more than 10%; $2 of that hit was caused by the Verizon announcement.

Verizon Is Coming! Consumers Rejoice! Telco’s Tremble!

When Verizon announced it had made a tentative offer for Wind Mobile panic hit the stock market. This must signal the end of the obscene profits to be made off wireless communication. Telus, Bell, and other telecom’s stock dropped sharply.

Does this make sense to you?

Verizon didn’t announce they had bought Wind Mobile. They didn’t announce they had Canadian federal government approval for the purchase. They didn’t announce they were opening business tomorrow and that they were planning to drop mobile rates by 50%. In fact, so far absolutely nothing has happened.

Will a New Player Drop Prices and Profits for Mobile Usage in Canada?

I’m old enough to remember when Walmart came to Canada. It was said that they would drive down prices all across the country.

Did they?

Maybe. I can usually find the same price or better at Canadian Tire or, previously, at Zellers.

Then Target came to town. I read through their first few flyers. Their “sale” prices were higher than the regular prices at many stores I shop at. Price comparisons done between the same items in the US and in Canada showed the Canadian prices are higher. Krystal Yee at Give Me Back My Five Bucks has some great examples.

It’s quite possible that if another cell phone company opens up in Canada that they may drop the prices by increasing competition. It’s also possible they may just join the party and enjoy the same over-inflated prices from which all the existing companies profit.

Should I Sell my Bell and Telus Stock Immediately?!

You can. It’s a free market. And you have a 50% chance of making the correct decision.

Me, I bought some Bell this week. At $2.33/share in annual dividends (which means a yield of over 5%) I’m prepared to take a risk that the Bell empire is not yet declining much less fallen.

DISCLAIMER: I’m not trained in financial matters nor am I in any way qualified to give financial advice. The BNS stock I bought is currently down almost 10% meaning I have lost about $1000 so far. Please get advice from someone who makes a profit before making your own investment decisions!

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