One of the best ways to determine the amount of competition in an industry is to look at the dividend yield of the industry. The dividend yield is usually determined by the amount of excess cash a company has left over at the end of the year less expenses. Dividends are typically only paid by companies in industries where there is little room for growth and that have huge profit margins. The S&P 500 average dividend yield is 1.9% and the telecom industry has a 5.3% yield. This yield is surprisingly even higher than our highly subsidized utility industry at 4.3%.
The telecom industry is notorious for under-investing in its infrastructure because shareholders always come before customers. The US is way behind the rest of the World in wireless service availability and speeds. This is the primary business reason why I think there is not enough competition in the wireless business and too much telecom corruption in the FCC. See our wireless telecom competition chart. The FCC measures competition incorrectly at a local level and does not look at macroeconomic financial issues with respect to the ability to compete.
Both Verizon & AT&T are two of the highest dividend-paying companies on Wall Street and are threatening to consolidate an industry even more at the expense of their customers. AT&T paid $10 billion dollars in dividends to shareholders in 2010 while competitor Verizon paid $5.4 in dividends in 2010. Consumers who are interested in seeing more innovation should make sure that our politicians block the merger. AT&T has plenty of spectrum and will do just fine without acquiring T-Mobile.
