The U.S. telecom market continues to witness intense pricing competition, as success to a great extent depends on technical superiority, quality of services and scalability. Additionally, the U.S. wireless industry is likely to become competitive in 2018 with the entry of cable MSOs (multi-service operators) in this space.
Entry of New Players in the Wireless Space
Comcast Corp. (CMCSA - Free Report) has already entered this field with its Xfinity Mobile offering. Presently, the company is using its MVNO (mobile virtual network operator) agreement with Verizon to use the latter’s wireless network coupled with its own WiFi network to offer mobile services. Importantly, the company acquired 73 licenses in the band of 600 MHz auctioned by the FCC. We believe that in the future Comcast will deploy this spectrum for extensive wireless coverage.
Charter Communications Inc. (CHTR - Free Report) has reiterated its plans of launching wireless service in the first half of next year. Much like Comcast, the company has an MVNO agreement with Verizon as well as its own WiFi network to offer mobile services. Charter Communications has also launched experimental field trials of the 5G wireless network.
These trials follow spectrum test licenses granted to the company by the FCC. The company is actively testing licensed small-cell technologies and has petitioned the FCC to release 3.5 GHz spectrum, popularly known as the CBRS band, for both licensed and unlicensed use.
DISH Network Corp. (DISH - Free Report) has created an extensive portfolio of spectrum, the most important component of wireless networks. The company boasts a portfolio of 80 MHz of radio frequencies of different bands, which will be utilized to deploy 4G LTE wireless network in top 100 U.S. markets. DISH Network’s CEO Charlie Ergen has hinted that the company is interested in the potential deal-making to enter the wireless industry. At the same time, Ergen also stated that DISH Network has a clear plan of building a wireless network on its own.
Additionally, Sprint Corp. (S - Free Report) has entered into a new multi-year strategic agreement with Altice USA Inc. (ATUS - Free Report) . Per the terms of the agreement Altice USA will utilize Sprint’s network to provide mobile voice and data services to its customers throughout the country, and Sprint will leverage the Altice USA broadband platform to accelerate the densification of its network.
Comcast, Charter Communications and Sprint currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Unlimited Data Plan War
Verizon has restructured and modernized its unlimited wireless data plans. Since Aug 23, 2017, Verizon Unlimited has been evolving into Go Unlimited, Beyond Unlimited and Business Unlimited. For prepaid lovers, there’s also a Prepaid Unlimited plan for $80 per month, with unlimited data, talk and text, DVD-quality streaming and free calling to Mexico and Canada. Without line limitations in Business Unlimited, Verizon Communications aims to target business entities.
Sprint’s unlimited plan costs between $60 and $160 (though the carrier is running a promotion of $100 for up to five lines for the first year). T-Mobile US’ T-Mobile One Plan is priced at $70 plan with DVD-level video streaming. AT&T’s economic version is $60, but it caps data speeds at a slow 3 megabits per second.
T-Mobile US has increased data caps on its unlimited data plans, from 32GB to 50GB, effective Sep 20. This implies that T-Mobile US’ subscribers will be able to use at least 50GB of data on their unlimited data plans before risking slowdowns in congested areas.
With this offer, the company’s data plans surpass those of its competitors, since Verizon and AT&T offer 22GB caps for unlimited data. Sprint, on the other hand, offers data caps of 23GB. Notably, T-Mobile US is offering more than double the data on its unlimited data plans.
Distressing Time for U.S. Pay-TV Industry - Customer Churn Soars
Research firm RBC recently predicted that customer churn in the legacy pay TV segment could soon accelerate to around 5 million a year. In June 2017, research firm SNL Kagan had predicted that the U.S. pay-TV industry (consisting of cable, satellite and IPTV operators) will lose approximately 10.8 million customers by 2021. Total pay-TV subscribers will be around 82.3 million at that time, which will be 20% less than the industry’s historical high level.
In terms of customer retention, legacy pay-TV operators are yet to cope with the onslaught of low-cost online video streaming service providers. In the last 10 years, the internal dynamics of the pay-TV market have gradually shifted from legacy pay-TV offerings to low-cost over-the-top (OTT) service providers. According to SNL Kagan, in the first half of 2017, the U.S. pay-TV industry lost 1.8 million customers.
In general, the beleaguered telecommunications companies have high debt levels and large financial leverage ratios. Moreover, they are often unable to cope with recent market trends. Other risks that pose threats are as follows:
• Potential Business Slowdown: Sales fluctuations of carriers are expected to continue weighing on capital-spending decisions -- a major problem faced by equipment vendors. The companies are expected to retain focus on improving balance sheets, financial discipline and free cash-flow generation.
• Product Overlapping: We may see more product-sharing deals between telecom, cable TV and satellite TV operators, as each of these players are vying to grab a sizeable share in each other’s territory. Even pay-TV services, offerings to business enterprises, mobile backhaul and metro-Ethernet segments may observe more convergence. Mobile phone makers are now progressively offering tablets and chipset manufacturers are providing chips for personal computers as well as mobile devices, – thus frequently interchanging their areas of operations.
• Intensified Competition: Technological upgrades and breakthroughs have resulted in cutthroat price competition. Product life-cycles and upgrade-cycles have been reduced drastically as several firms are coming up with new products and services within a short span of time. Increasing competition is compelling players to offer heterogeneous and bundled services to retain their position in the space.
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