We expect the U.S. telecommunications industry to witness growth in 2018 more or less in line with the broader market. This industry has emerged as an intensely contested space where success largely depends on technical superiority, the quality of services and scalability.
Internet-of-Things (IoT): The Next Big Thing
IoT, which enables any physical electronic device with a valid IP-address to transfer data seamlessly over a wireless network, is rapidly gaining significant market traction and bringing about fundamental changes in business models. Next-generation superfast wireless networks (4G LTE, LTE-A, upcoming 5G) will provide the primary impetus to the telecom industry. In this context, IoT holds the potential to be the #1 factor in driving future growth in the space. Superfast 5G mobile networks will be of utmost importance in management of exponential growth in IoT.
Presently, all the four major national wireless operators, namely, Verizon Communications Inc. (VZ - Free Report) , AT&T Inc. (T - Free Report) , Sprint Corp. (S - Free Report) and T-Mobile US Inc. (TMUS - Free Report) are conducting trial runs for 5G wireless standards. All four stocks currently carry a Zacks Rank #3 (Hold).You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Online TV Streaming: A New Catalyst
Internet TV streaming service is gradually gaining market traction in the United States. Of late, the legacy pay-TV industry has been facing stiff competition from online video streaming service providers. The low-cost over-the-top video streaming service has resulted in massive cord cutting that is threatening the pay-TV business model. Internet TV streaming has emerged as a strong alternative to counter this competitive threat.
The growing deployment of 4G LTE mobile network and significant adoption of portable mobile devices are the primary reasons behind the popularity of Internet TV streaming. The millennials have a strong appetite for new technologies, as they are no longer interested in incurring huge bills for a fat pay-TV bundle. Instead, cost-effective skinny TV bundles are gaining favor with the next generation.
Moreover, an increasing number of customers are using the Internet to watch videos and want mobility of content. This has given TV distributors an opportunity to differentiate products by offering access to select content through their networks. By making deals directly with content developers, service providers are trying to draw customers with bundles of content such as streaming entertainment or sporting events, possibly with no additional data charges.
Online Digital Advertisement: Prospects Solid
Online digital advertising is the new buzzword for major advertisers and advertising agencies. Ad spending through 2017 continued to shift from traditional venues, including TV, toward digital platforms. Moreover, advertisement on both legacy and mobile video platforms is gradually shifting from simply selling banner ads to automated or programmatic ad selling.
ISPs are gradually adopting the data-driven advertising technique, which is already popular in the web-based advertisement arena. Advertisement in mobile TV networks is gaining considerable market traction for the corporate world. Since each mobile device is connected to a specific viewer, the scope for target audience advertisement is enormous in this industry. The multicast mobile TV industry has achieved a significant milestone in viewership rating and advertising impression reporting system.
In order to derive maximum synergy from the combined video content and video distribution platform, ISPs are aggressively penetrating into the advertising technology market. Inclusion of dynamic ad-insertion, targeted audience advertising and data-driven TV advertisements are steps toward the same objective. The advertising platform is designed to monetize applications for publishers and developers through the use of data-driven ad targeting.
The telecommunications industry as a whole offers a number of positives that are difficult to disregard from the standpoint of investors.
• Rapid Technological Advancement: Telecommunications is a vital industry witnessing rapid technological improvement, even during recession. Unprecedented growth in high-speed mobile Internet traffic, particularly with respect to wireless data and video, has transformed this industry into the ever-evolving, inventive and keenly contested space.
• Barriers to Entry: Lack of public airwaves (spectrum) in the telecommunications industry creates a high barrier to entry. The U.S. telecom market is controlled by just four national players, as regional low-cost operators are unable to compete with large carriers. Moreover, it is not easy for a new telecom carrier to establish itself in the market, as it requires government approval to transmit voice, data, and video on public airwaves. Spectrum licenses are limited and therefore quite expensive. The deployment of network infrastructure requires significant capital expenditure, which only a few entities can afford. Consequently, this barrier protects the profits of incumbents in the telecom space.
• Strong Demand: A recovering economy drives demand for real-time voice, data and video. This escalation in demand has encouraged telecom service providers to undertake large network extensions, while upgrading plans. Moreover, the FCC projects 25 – 50-fold mobile data demand growth over the next five years.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>