Though it hasn’t been a very eventful week for telecom companies, a few developments were worth noting. Verizon Communications Inc. (VZ Quick QuoteVZ - Free Report) has entered into a tentative deal with two workers’ unions whose members went to strike from Apr 13, 2016.

Verizon and the striking unions, The Communications Workers of America (CWA) and International Brotherhood of Electrical Workers (IBEW), have almost resolved their differences and nearly 36,500 workers in the company’s wireline and cable TV (FiOS Internet and TV) segment resumed work on Jun 1, 2016. Union members will vote on the tentative contract by Jun 17.

Meanwhile, the race to take over Yahoo! Inc. intensified with the U.S. telecom behemoth AT&T Inc. (T Quick QuoteT - Free Report) making a bid for the company. Yahoo has reportedly received more than 10 initial bids ranging from around US$4 billion to $8 billion.Among the notable bidders are Verizon and private equity firm TPG Capital LP. Before AT&T came into the picture, Verizon was considered as best suited to merge Yahoo into its online platform. However, the entry of AT&T may change the entire landscape.

In a separate development, T-Mobile US Inc. (TMUS Quick QuoteTMUS - Free Report) is gradually expanding its 4G LTE coverage in the U.S. Recently, the company has entered into an agreement with AT&T to acquire spectrum in the 700 MHz band. This will help the company to provide LTE network in the greater Chicago area. AT&T had acquired this license as part of its takeover of Leap Wireless two years ago. Although the financial terms of the T-Mobile US – AT&T deal have been kept under wraps, the transaction is likely to be closed in the fourth quarter of 2016.

Outside the U.S., two important developments took place in the Mexican telecom space. Mexico's Secretariat of Communications and Transport (SCT) has confirmed that it will announce the names of the winners of its 700 MHz nationwide shared broadband network on Sep 29, 2016. The SCT was initially slated to declare the tender winners on Aug 24. The SCT cited the number of tenders and the complexity of queries and requests for clarification submitted by the bidders as the primary reason for the delay.

Various leading telecom infrastructure equipment developers with global operational experience offered bids for the state-owned mobile network project. Notable among them were Ericsson AB (ERIC Quick QuoteERIC - Free Report) , Nokia Corp. (NOK Quick QuoteNOK - Free Report) , Cisco Systems Inc. (CSCO Quick QuoteCSCO - Free Report) , Motorola Solutions Inc. (MSI Quick QuoteMSI - Free Report) , China Telecom Corp. Ltd. (CHA Quick QuoteCHA - Free Report) , Alestra, and Huawei Technologies Co. Ltd. The SCT received 39 tenders from interested parties.

Additionally, Mexican telecom regulator, the Federal Telecommunications Institute (IFT or Ifetel) recently granted concessions for the 1710-1780 MHz/2110-2180 MHz AWS frequency bands to America Movil SAB (AMX Quick QuoteAMX - Free Report) and AT&T. On Feb 15, 2016, the IFT opened an auction for 80 MHz of wireless spectrum across various Advanced Wireless Services (AWS) bands. America Movil and AT&T emerged as the two winners of the spectrum auction.

Read the last Telecom Stock Roundup for May 26, 2016.

Recap of the Week’s Most Important Stories

1.    Verizon and its wireline workers were at a stalemate over a labor contract. The company’s wireline employees have been working out of contract since August last year. Under the new contract, Verizon will provide a 10.9% pay rise to its unionized workers over a period of four years, a small increment in pension benefit and a promise to create nearly 1,400 new union jobs. Importantly, the company agreed to reduce subcontracting and withdrew a proposal to relocate employees for extended periods. These were the main issues of the strike (read more: Verizon Enters Tentative Deal with Unions to End Strike).

2.    AT&T was already involved in the Yahoo takeover process through its subsidiary and Yellow Pages owner YP LLC. However, after the direct entry of A&T as a bidder, its subsidiary YP LLC. opted out of the race. Last year, AT&T acquired DIRECTV, the largest satellite TV operator in the U.S. AT&T plans to offer online streaming-video service this year, using the DIRECTV brand. The acquisition of Yahoo would help AT&T to provide ad delivered Internet contents to the smartphone friendly next gen (read more: Yahoo Takeover Bid Heats Up with AT&T in the Race).

3.    The U.S. telecom industry has lately emerged as an intensely contested space where success thrives largely on technical superiority, quality of services and scalability. Thus, in order to stay ahead of competition, existing players need to be constantly on their toes to introduce innovative products. At this juncture, we believe T-Mobile US’ decision to expand 4G LTE network and its drive for 5G wireless network will prepare the ground for future growth (read more: T-Mobile US to Acquire 700 MHz Spectrum from AT&T).

4.    The Mexican telecom regulator, IFT’s concession will enable America Movil and AT&T to have contiguous blocks of spectrum, which will provide them with higher data transfer speeds whereby they can offer better mobile services. Notably, AWS spectrums are highly coveted for the deployment of 4G LTE networks. The IFT is looking to collect $2.5 billion over the next 15 years from this spectrum auction, including initial bids and yearly payments for spectrum licenses (read more: America Movil and AT&T Granted 4G Concession in Mexico).

5.    In 2014, the Mexican government had undertaken a massive project of shared wireless network to instill competition in the highly monopolistic telecom industry. The idea was to facilitate small-scale telecom operators to use this state-owned network for their wireless coverage instead of installing their own network, which tends to be a highly capital intensive process. However, in May 2015, the government of Mexico slashed its planned expenditure from $10 billion to $7 billion for the proposed deployment of the nationwide wholesale mobile network over the next 20 years (read more: Mexico 4G Shared Network Tender Results Due in September).

Price Performance

The following table shows the price movement of the major telecom players over the past week and the last six months.

Over the last five trading sessions, share price movement of the major telecom stocks was predominantly positive. DISH Network (12.28%) and Sprint (6.80%) gained substantially while America Movil (2.26%) lost the most.

Similarly, over the last six months, the price performance of most of the key telecom stocks witnessed a positive trend. Among the stocks that depreciated the most were America Movil (24.38%) and DISH Network (13.77%). On the contrary, T-Mobile US (20.91%), AT&T (18.81%) and Verizon (15.62%) gained significantly over the last six months.

What’s Next in the Telecom Sector?

We neither foresee any significant change in the telecom industry, nor do we see any macroeconomic factors affecting the industry in the coming week. Therefore, we expect stocks to trade in line with the broader market.  

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