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Saturday, August 26, 2006

Weekend Edition:Wall St Hangs Up On Phone Companies

Stocks: (VZ)(T)(Q)(EBAY)(TWX)(CMCSA)

Short interest in all of the major phone companies rose in August. AT&T short interest rose 14 million to 120 million shares. The short interest in AT&T is the third largest of any stock traded on the NYSE. Shares short in Qwest rose 14 million to 69 million. Shares short in Qwest ranked fourth of any stock traded on the NYSE. And, shares short in Verizon rose 3 million to 37 million.

All three stocks have had their runs. AT&T is up from its 52-week low of $21.79 to near its high, trading at $30.56. Qwest has run from $3.69 to $8.60, also near its 12-month high. And, Verizon is up from $29.13 over the last year to $34.52. That is also near VZ's 52-week peak.

The bet against the big telcos may not be a bad one.

Cable firms including Comcast and Time Warner Cable are horning in on telephone service with VoIP. Companies like eBay unit Skype actually offer free VoIP.

For the telcos to match cable offerings, the are forced to put down fiber that is expensive to install. The three large telephone companies will have to invest, and in some cases are investing, billions of dollars so that they can offer fast broadband and internet TV along with their phone service.

The cable companies are also bidding for radio spectrum in the hopes of offering wireless phone service, another flanking move against the telcos.

With expensive infrastructure upgrades ahead and increasing competition from cable for products like wireless phones, the telcos may have seen their shares peak, at least for a time.

Douglas A. McIntyre

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