The U.S. telecom stocks mirrored the broader S&P 500 benchmark index in the past week and witnessed an uptrend after an initial fall as TikTok managed to evade a ban in its regional operations with an Oracle deal. Although the situation is considerably fluid and requires approval of the state heads of the United States and China, it has offered some respite to firms that depend on healthy bilateral trade relations for most of their businesses. On the other hand, the completion of the TikTok deal within the stipulated timeframe has also given some headway to U.S. firms to accelerate technology decoupling with China.
Per the deal, Oracle is likely to gain a minority ownership stake in the newly formed TikTok that will pursue an initial public offering in about a year, with U.S. headquarters and an independent management board approved by the Trump administration. The new terms include 20 pages of detailed provisions over data and national security concerns raised by Washington. Oracle will gain full access to TikTok’s source code and updates. This is likely to serve as a deterrent against any attempt by the Chinese parent firm to access private sensitive data of the video-sharing app’s U.S. users. However, TikTok is likely to retain the algorithmic models that remain at its core of content recommendation and are deemed to its secret recipe for success. With the deal, the video sharing firm has sidestepped the geo-political tussle and has aimed to strike a balance by appeasing both the countries. The ball is presently in the court of the President and it remains to be seen whether he gives it green signal or aims to gain more political mileage by eliminating the faintest of Chinese presence in an U.S.-operated firm. Meanwhile, several telecom equipment manufacturing firms have collectively urged the Trump administration to debunk a proposal to add Semiconductor Manufacturing International Corp. – China's top chipmaker in the ‘Entity List’. They argued that this would be detrimental to the existence of numerous U.S. firms that supply various raw materials to this company, which accounts for about $5 billion in annual U.S. origin equipment and material sales annually. Although the related government agencies have refrained from commenting on this issue, the Chinese firm’s close proximity to the local military is largely considered to be the deciding factor behind its intended inclusion in the restricted list. Regarding company-specific news, divestment talks, product launches, collaborations and acquisitions took the center stage over the past five trading days. Recap of the Week’s Most Important Stories
Nokia Corporation ( NOK Quick Quote NOK - Free Report) has taken a giant step forward in global 5G network deployments by achieving 100% digitization of the related processes. The move is likely to accelerate time-to-market for the complex procedures involved in 5G deployment, thereby generating healthy ROI for the operators. To date, carriers mostly had to rely on a combination of traditional methods, including both paper-based and digital documentation for network deployments. These involved the risk of errors and human inefficiencies, which Nokia is aiming to eliminate. The latest move, is likely to expediate the process and be cost-effective, enabling carriers to match the evolving needs of customers at a faster pace. Notably, this has reduced customer site visits by 30%, with 30% improvement each in installation quality and back office transaction along with 25% improvement in cycle times. 2. AT&T Inc.’s ( T Quick Quote T - Free Report) senior executive vice president and chief financial officer, John Stephens, recently provided an update to shareholders at the Bank of America Securities 2020 Media, Communications & Entertainment Conference. The Dallas, TX-based telecom and media giant aims to strengthen its balance sheet while investing in key growth areas. These include broadband connectivity in fiber and 5G and software-based entertainment like HBO Max and AT&T TV. Stephens stated that AT&T has limited visibility into the extent of the impact of COVID-19. The company is investing in its transformation and efficiency efforts. It is confident of its ability to generate strong cash flows, thanks to the resiliency of wireless and broadband services and the demand for business connectivity. While the wireless market remains competitive, AT&T is benefiting from its investments over the past few years to improve network capacity. 3. Telefónica, S.A. ( TEF Quick Quote TEF - Free Report) is aiming to take a giant leap forward by deploying 5G services to 75% of Spain’s population by the end of the year. Accordingly, the company has inked agreements with Nordic firms – Nokia Corporation and Ericsson – to provide essential telecommunications equipment for the nationwide deployment. Riding on the individual core competencies of Nokia and Ericsson, Telefonica remains well poised to achieve its set target of 5G deployment in Spain. The 5G network is likely to enable vertical industries to introduce new businesses and promote direct and indirect cross-cutting benefits to primary sectors such as healthcare, tourism and automotive. It will also promote digitization of small and mid-size enterprises. 4. TELUS Corporation ( TU Quick Quote TU - Free Report) , in collaboration with the Government of Canada, has announced a C$15 million investment for the deployment of a submarine fiber optic cable between Sept-Iles and the Gaspesie region. The project is likely to improve the reliability of telecommunication services on the North Shore. In case of a fiber cut on the main transmission network, the submarine cable will ensure continuity of Internet, TV, and wireline and wireless phone services to the communities located between Baie-Comeau and Blanc-Sablon. The additional fiber optic cable will ensure the readiness of public institutions, enable local companies to grow their digital presence and connect people with their near and dear ones. 5. BCE Inc. ( BCE Quick Quote BCE - Free Report) recently announced that its wholly owned subsidiary Bell Canada is extending footprint in rural Canada with improved broadband services to underserved communities across the region. The faster Internet connectivity is likely to help the company bridge the digital gap with urban locations, thereby fostering the overall development of the rural areas. Per the government’s policy framework, Bell’s Wireless Home Internet program is currently aiming to achieve 50/10 speed (50 Megabits per second download/10 Mbps upload) in more rural households. The company is providing immediate broadband access to 350,000 rural homes and is well on course to fulfill its set target of Internet connectivity to 80,000 additional such homes by the end of year. Price Performance
The following table shows the price movement of some of the major telecom stocks over the past week and the six months.
In the past five trading days, Motorola was the best performer with its stock up 2.6%, while Arista was the biggest decliner with its stock falling 2.9%. Over the past six months, Qualcomm has been the best performer with its stock appreciating 43.3%, while AT&T was the sole decliner with its stock falling 6.5%. Over the past six months, the Zacks Telecommunications Services industry has rallied 15.6%, while the S&P 500 has gained 39.9%. What’s Next in the Telecom Space?
In addition to the 5G deployments and product launches, all eyes will remain glued to how the TikTok saga unfurls and whether President Trump gives a go-ahead to the transaction.
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