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For Immediate Release
Chicago, IL – March 5, 2012 – Today, Zacks Equity Research discusses the Telecom Industry, including AT&T Inc. (T - Analyst Report), DISH Network Corp. (DISH - Analyst Report), Verizon Communications Inc. (VZ - Analyst Report), MetroPCS Communications Inc. and CenturyLink Inc. (CTL - Analyst Report).
A synopsis of today’s Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/70681/Telecom+Stock+Outlook+-+March+2012
The U.S. telecommunications industry is likely to be benefited in the near future two ways: (1) recent approval of the U.S. Congress to initiate a fresh round of spectrum auction for the wireless industry, and (2) significant technological inventions and innovations that make even a mature market like the U.S. highly lucrative for the telecom operators.
In February 2012, The U.S. Congress has decided to free up spectrum currently used by TV broadcasters for commercial wireless networks and to deploy a nationwide interoperable public-safety broadband network. Huge proliferation of smartphones, tablets and several other pocket-sized mobile devices significantly raised the demand for bandwidth for seamless wireless connectivity. The spectrum auction is expected to generate $25 billion - $30 billion in the U.S. government exchequer.
Furthermore, as the global economy recovers slowly, demand for real-time voice, data, and video increases by leaps and bounds. The FCC has estimated that within the next 5 years, mobile-data demand will grow 25-50 folds from its current level. These latest developments are enabling the telecom service providers to undertake large network extension while upgrading plans. The decision of Congress is mainly aimed to solve growing consumer demand for efficient wireless networks.
Smartphones and tablets have become the next-generation choice and are increasingly taking over market share from the basic mobile handsets. Although the economy is under recovery phase, and we are not completely out of the woods, the growth in the smartphone market maintains its impressive trend.
This reflects a shift in consumer preference toward application-rich devices from ordinary mobile handsets used primarily for voice telephony. Smartphones are generally characterized by very powerful operating systems capable of supporting a variety of services and applications that need very high-speed network infrastructures.
GSM Association has forecasted that within the next 5 years, telecom operators will invest approximately $100 billion to upgrade their respective networks for accommodating hassle free transmission of mobile data and video traffic. The major technical areas will be High-Speed Packet Access (HSPA), 3G mobile broadband, and next-generation (4G) LTE. One simple example of this significant rate of growth is that LTE network, which was globally first deployed in late 2009, at present provides over 2 million connections.
As smartphone users are now downloading increasing multimedia contents, video has become the primary network traffic. What is more interesting, in addition to download, the smartphone and tablet users are uplinking more and more video content, and in turn, becoming broadcasters on their own. Several industry researchers predicted that video may account for 60% of total network traffic by the end of 2012.
Mergers & Acquisitions to Continue
Despite the failed merger agreement between AT&T Inc. (T - Analyst Report) and T-Mobile USA, we believe the U.S. telecom industry will witness more M&A in 2012. AT&T needs spectrum to compete with its bigger rival Verizon Wireless. Similarly, small prepaid operators like MetroPCS and Leap Wireless may also join or merge with a nationwide carrier in order to attain economies of scale and pricing power. DISH Network Corp. (DISH - Analyst Report), which holds a large wireless spectrum, has already declared that it is not averse to a deal as an acquirer or an acquired entity.
Competition Looms Large
Massive technology invention and innovation have resulted in significant competitive atmosphere within the telecommunications industry. Product life-cycle and upgrade-cycle have been reduced drastically since several firms are coming out with new types of products and services within a short span of time. Increasing competition is actually forcing each and every player to offer heterogeneous and bundled services.
We may see more product sharing deals between telecom, cable TV and satellite TV operators as each of these players are trying to get a foothold into the other’s territory. Even pay-TV services, offerings to business enterprises, and mobile backhaul and metro-Ethernet segments may witness more convergence. Mobile phone makers are now gradually offering tablets (small laptops), chipset manufacturers for personal computers and mobile phones are frequently interchanging their areas of operations.
The telecommunications industry as a whole offers a number of attributes that are difficult to ignore from the standpoint of investors.
The companies we like in this space are AT&T, Verizon Communications Inc. (VZ - Analyst Report), MetroPCS Communications Inc. and CenturyLink Inc. (CTL - Analyst Report).
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