Telecoms to Provide Cell Security - Analyst Blog

Zacks Investment Research
Posted: Apr 10, 2012 5:45 PM
Telecoms to Provide Cell Security - Analyst Blog

The alarming rate of mobile theft has finally made the government and wireless operators up their sleeves to address this menace in a much stronger way.  Mega carriers like Verizon Communications (VZ) Sprint Nextel Corp. (S), AT&T Inc. (T), and T-Mobile USA, a subsidiary of Deutsche Telekom AG (DTEGY), have come together with Federal Communications Commission to develop a centralized data base to track lost cell phones and block them, thereby making them dysfunctional for further use.

The service is expected to be launched within the next six months and mobile phones will be provided with unique IDs that will be recorded in the data base.  Initially, the data base will be shared by Verizon, Sprint, AT&T and T-Mobile and data centralization is expected to take place within 18 months.  Thereafter, local carriers are expected to participate within the next two years.

Given the popularity of smartphones (high-end wireless devices in particular), gadget robbery has been on rise, accounting for most of the robbery cases in the U.S. This eventually affects the cell phone makers and distributors as the stolen devices find their way into the grey market where they are sold at staggeringly low prices.

This practice not only hurts the companies' finances but also jeopardizes the image of their products as these high-end gadgets are basically designed to cater to the up market consumers. Once these high-end products enter the mass market, the market position of these products gradually loses their sheen and eventually affects their actual market price and the company’s market value.

As a result, many countries like Australia, UK, Germany and France have adopted data-base centric mobile security plans which helped them in lowering the theft numbers, if not completely uproot the issue.    

In the U.S., there are many such security software that claim to protect mobiles upon theft but have largely failed to address the issue. In such a scenario, tracking a mobile’s the unique IDs system through centralized data base remains encouraging but thorough implementation of this is expected to take place gradually over time.  To support the success of the new phone tracking system, the government is also considering new rules to make tampering with unique IDs a federal crime so that every mobile customer is covered by a cell phone ID.

We believe that the security initiative by the major wireless carrier is promising for their existing users and may result in more customer addition under their network. However, any meaningful synergy arising out of such service apart from customer satisfaction is something to watch out for.

We have our long-term Neutral recommendation on Sprint, AT&T and Verizon supported by Zacks #3 Rank (Hold).

DEUTSCHE TELEKM (DTEGY): Free Stock Analysis Report
SPRINT NEXTEL (S): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research