Inflation is everywhere. Except for your cell phone bill

Shares of telecom companies pay for it.

Even as Americans pay more for just about everything else, the average price of mobile phone plans continues to fall. This is in large part due to the intense competition between Verizon (VZ)the parent company of CNN AT&T (T) And the T-Mobile (TMUS). Price wars are more prevalent than ever, even after T-Mobile’s merger with Sprint in 2020 — a deal that some fear will lead to more pricing power for the industry giants.

The decline in wireless utility bills stands “in stark contrast to the prevailing inflation seen elsewhere,” analysts at Wall Street research firm Moffett Nathanson wrote in a report titled “Industry Inflation Forgotten.”

It appears in the financial results. AT&T, Verizon, and T-Mobile reported declines in fourth-quarter average revenue per user (ARPU) — a key price metric in the wireless business. AT&T posted the biggest drop of 1.1%, while Verizon and T-Mobile both fell less than 1%.

Analysts argue that this may be the main reason why Verizon and AT&T shares haven’t risen this year. Verizon flat and AT&T stock fell 6%. While that’s not as bad as the S&P 500’s roughly 7.5% loss, there’s still something to call (or text) home.

“Against the backdrop of daunting geopolitical and troubling financial risks, it is not surprising that telecom stocks have outperformed,” Moffett Nathanson analysts wrote. “If it’s any surprise, it’s that they haven’t outperformed any more.”

They point out that the major wireless providers in the US are not exposed to Europe, where recession risks are rising and consumers feel a bigger crunch than the massive rise in oil and natural gas prices.

Wireless stocks should still do well even if the economy slows

Usually, carriers are also good defensive bets when the economy slows.

Analysts added: “If there is a recession in the United States, their services are, to a large extent, indispensable. Verizon and AT&T both pay flat dividends.” Both companies pay dividends at much higher yields than long-term Treasuries.

“It seems to be ideally suited to these times,” the analysts added. “But what they lack is pricing power.”

T-Mobile stock has held up better, gaining about 10% this year thanks to market share gains and lower customer profiles (i.e. changing subscribers for your wireless service provider).

“Only T-Mobile is well-positioned to weather this storm,” Moffett Nathanson analysts said. “With many growth opportunities still in place… we believe T-Mobile’s share gains are poised to accelerate.”

As part of its deal with Sprint, T-Mobile said it won’t raise prices for existing customers for three years. But AT&T and Verizon seem to realize that they may need to raise prices.

On an AT&T analyst day earlier this month, CFO Pascal Deroches predicted there would be a “more natural backdrop to the industry” and what he called “surgical” price increases later this year. He added that the goal is “ARPU stability”.

Verizon’s chief financial officer Matt Ellis said during the company’s earnings call in late January that there was “good news” for the company regarding the expenses.

He said many of the company’s costs are tied to long-term contracts, which means Verizon “will not necessarily see the full impact of inflation at the same pace as other industries.”

But Ellis has not shrugged off the threat of more price pressures.

“Inflation is there. We will certainly see some of that,” he said. “It’s real. We will take action to address that.”