Sell AT&T Inc. (T) and Verizon Communications Inc. (VZ): Sprint Nextel Corporation (S) Has an Overwhelming Advantage

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Sprint also has access to the Japanese bond market, which has extremely low interest rate. Most analysts anticipate that the value of the yen will depreciate relative to the dollar. Because of this, when Sprint Nextel Corporation (NYSE:S) borrows from Japan and converts the dollar over to the yen, the value of the dollar appreciates relative to the yen. This may allow Sprint to borrow money at what is effectively a below 0% interest rate. This assumption is driven by a forecast by Goldman Sachs.

It is basically assumed that by 2015, the currency exchange rate of the dollar-yen will be at around 107 to 110. Currently the dollar-yen is trading at around 99.80. Softbank is paying a 1.74% interest rate, assuming the dollar appreciates by around 7% to 10% from current levels. What will happen is that the appreciated value of the dollar will make up for the cost of interest. Because of this, I believe that Sprint has an overwhelming competitive advantage going forward.

Conclusion

Sprint will be able to capture new United States customers with a lower-cost fast network. I am willing to assume that Sprint Nextel Corporation (NYSE:S) will gain a larger percentage of the United States market share as a result. Because of this, it is highly probable that both AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) will either have to concede market share or lower prices on their mobile services. This will result in falling margins or loss of revenue growth. This is why both AT&T Inc. (NYSE:T) and Verizon should be avoided right now.

Alexander Cho has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Sell AT&T and Verizon: Sprint Has an Overwhelming Advantage originally appeared on Fool.com.

Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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