Economic smackdown awaiting telcos?

Throughout 2008, the increasingly harsh economic climate has had telecom industry observers wondering how soon and how badly the crisis would impact telco earnings. This year's second quarter earnings reports included numbers from both AT&T and Verizon Communications that were probably better than some people had expected. But their financial reports also provided reasons for investors to proceed with caution, as both companies' stock prices have been well off their 52-week highs since then.

At least four analysts this week issued reports advising further caution or cut their price targets for both AT&T and Verizon. Craig Moffett, a Sanford C. Bernstein analyst, said that both business customers and individual consumers will continue to restrict their own spending, and that the price of borrowing money will go up. That is not good news in particular for Verizon, which is in the midst of acquiring Alltel.

AT&T will deliver its third quarter earnings report on Oct. 22, and Verizon follows on Oct. 27, so stay tuned. If these two telcos report trouble, the ripple effects will be felt across and through every layer of the telecom industry.

For more:
- see this post [1] at The New York Times Blogs
- check this post at Barron's Tech Trader Daily

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Verizon's net income was up 12 percent in the second quarter [2]
AT&T's net income growth was even stronger in the second quarter [3]