LightSquared Inc. has been in the news a lot lately. LightSquared intends to deploy an open wireless broadband network using a technology called Long Term Evolution (LTE), the most widely adopted 4G standard in the world. Its LTE network will be combined with one of the largest commercial satellites ever launched, to provide coverage of the entire United States.
This integrated LTE-satellite network is a world first. LightSquared may be on the verge of increasing competition for wholesale Internet costs on a whole new level. Estimates include cost reductions of 50% or more for cell phone carriers. The economics are so strong it is difficult to make a case where consumers will not be provided with everything from lower bills, better service, greater streaming content choices, to every combination of each.
Not everyone is singing songs of praise for LightSquared including well known John Deere Co. (DE). Deere has been highly active in trying to prevent LightSquared from moving forward because many consumer GPS systems were built to such low standards they may have problems working after LightSquared is up and running. One may not immediately guess why Deere would care about GPS systems until a closer review reveals new farm equipment offered with (somewhat) GPS systems for things like better planting, control and return on investment for farmers. In order for cheap GPS systems to work, they "bleed" over into non-GPS spectrum. The next door neighbors of the GPS spectrum happens to be LightSquared and many companies including Deere are so used to using what is now LightSquared property they are upset LightSquared is essentially putting a new house up which will require GPS users to work within the limitations of the spectrum assigned to GPS systems.
Other potential losers include Sirius XM (SIRI), AT&T (T) and Verizon (VZ). With lower data costs, consumers can be expected to have greater content choices. Currently music is delivered through satellite from Sirius, wireless Internet through a host of providers including Pandora (P), and traditional AM/FM radio. LightSquared can be expected to expand wireless Internet in all areas including rural areas currently not served or served with much slower, expensive service. Unlimited plans can be expected to increase, which reasonably translates into greater listenership.
Sirius will likely be affected by greater competition as other content providers are able to expand their usability footprint. I would expect this to be somewhat mitigated by expanded use of Sirius through Internet instead of satellite. Sirius' biggest market is through vehicle sales and LightSquared is contracting with companies to offer in vehicle Internet service. AT&T and Verizon can expect to have margins squeezed as they face lower priced competition from Sprint (S), Best Buy (BBY) and others selling wireless broadband for less than half the current market rates.
Pandora, Google (GOOG) and Leap Wireless (LEAP) will likely become obvious winners if consumers are able to stream greater amounts of content at the same or lower cost. Pandora can expect lower broadband wireless costs to result in greater smart phone sales, and greater consumption of content requiring wireless broadband.
YouTube's owner Google sells ads on the widely used video streaming service. Greater consumption means greater numbers of ads displayed, resulting in greater high yielding revenue for Google. Sprint has also signed on with LightSquared and can expect to lower its costs for serving customers.
It's crystal clear how important LightSquared will be to the bottom line for Sprint. In recent news, Sprint granted LightSquared a 30-day reprieve on FCC clearance. With Sprint trading near 52 week lows and priced for bankruptcy, I will become very interested in adding Sprint covered calls and or shorting Sprint put options if the skies clear and LightSquared is finally able to deploy its network. Like YouTtube, NetFlix (NFLX) streams large quantities of data to deliver movies and TV shows. Increasing the ability for mobile users like travelers to be able to stream movies instead of renting appears to be simple enough. While it may not be the biggest boost for Netflix, reductions as a direct and indirect result of LightSquared can be expected to improve subscriber numbers and/or churn rate.
How can I make a buck off all this? Now that we have an idea of whom the likely largest winners and losers will be, let's take a look.
I have been and continue to be very bullish with Google. It is easy to see why I continue after looking at the chart. Even today Google made a new 52-week high. At a price near $670 per share at the time of writing, it may be challenging to keep a portfolio balanced when adding a high priced stock. Options are a great way to gain exposure to Google without having to sell every other stock you own to buy a full lot. With back month options actively traded, lower risk, and option spreads allowing time decay mitigation, options make a great choice for stocks like this.
A lot of investors stay away from options due to fear of the unknown. I receive questions daily about options and fortunately for investors a new ebook has been published by fellow contributor and author Rocco Pendola. Not only does this excellent book cover the basics for the investor just starting out in the world of options, but many of the examples used are focused on large priced stocks like Google and Apple (AAPL). Furthermore, Pendola's option book is not about trading, but investing longer term with options. I have read and recommend it if you don't know, but want to know about using options as a strategic investing tool. You can find it by clicking here.
I am increasingly turning bullish with Sprint. I normally like to short stocks under $5 because they are wonderful bankruptcy candidates, but I believe Sprint is here to stay. Buying sprint is like buying an option that doesn't expire. I am still in the process of reviewing Sprint and will return with my results if positive soon.
Sirius is a call option short candidate for me if the price moves much above $2 per share. It used to be a short candidate at a much lower price, but the financials have improved over the last year. Today we witnessed a breach of the 200-day moving average for the first time in a long time. This is somewhat bullish so I will keep the powder dry for now.
Do you have a company you want me to review? Do you share or not share my thoughts? Let me know in the comments below.
I use a proprietary blend of technical analysis, financial crowd behavior and fundamentals in my short-term trades, and while not totally the same in longer swing trades to investments, the concepts used are similar. You may want to use this article as a starting point of your own research with your financial planner.
Disclosure: I am long RIMM.
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