U.S. telecom stocks slipped over the past week due to lack of clarity over essential policy guidelines. While the Trump administration primarily focused on ‘technology decoupling’, which enforced strict export restrictions based on national security grounds, President Biden seems more inclined toward the "small yard, high fence" strategy. This policy aims to take a more proactive approach in defining technologies that are essential to American national interests and employ stringent protective measures. Instead of an outright trade ban that largely affects the supply-chain mechanism, it intends to identify the source of the bottlenecks behind a product shortage and work in tandem with the industry to fix it so that business interests of domestic firms are not harmed. Although such an agile approach is praiseworthy, the list of technologies that are considered to be worthy of protection is yet to be revealed, thereby creating an element of uncertainty within the industry.
In tune with this policy shift, the President inked an executive order to launch a 100-day review process of the supply chain mechanism to address the global shortage of semiconductor chips and devise ways to increase domestic production while eliminating dependence on China. He also promised to seek a fund of $37 billion for legislation to ramp up production capacity as only 12% of the global manufacturing is reportedly done in the United States. This, in turn, is likely to encourage job additions while reducing supply bottlenecks. Meanwhile, the FCC revealed the winning bidders of its recently-concluded C-Band auction for mid-band airwaves, which generated about $81.2 billion in gross proceeds. Verizon Communications Inc. was the largest bidder with $45.5 billion worth of bids, followed by AT&T Inc. and T-Mobile US Inc. at $23.4 billion and $9.3 billion, respectively. Notably, the auction will offer 280 MHz of spectrum in the 3.7-3.98 GHz band for potential 5G deployments over the next few years. This mid-band airwaves offer significant bandwidth with better propagation characteristics for optimum coverage in both rural and urban areas. While Verizon secured 3,511 of the 5,684 licenses up for grabs, AT&T and T-Mobile claimed 1,621 and 142 licenses, respectively. This, in turn, helped Verizon and AT&T to close in the gap with T-Mobile in relation to its mid-band spectrum holding, which has relatively higher mid-band assets owing to its merger with Sprint. Regarding company-specific news, product launches, divestments, quarterly results and collaborations primarily took the center stage over the past five trading days. Recap of the Week’s Most Important Stories
Ericsson ( ERIC Quick Quote ERIC - Free Report) recently augmented its portfolio with the launch of solutions for mid-band 5G deployment as carriers are increasingly turning focus to extensive 5G rollout across the country. The introduction of three new radios in Massive MIMO (multiple-input and multiple-output) and six products within RAN (radio access network) Compute portfolios is likely to enable carriers harness the full potential of the mid-band spectrum as more airwaves will be made available in the near future. 2. According to industry grapevines, AT&T Inc. ( T Quick Quote T - Free Report) is reportedly contemplating the divestment of a significant minority stake in the pay-TV business, comprising DirecTV, AT&T TV Now and U-Verse. Undisclosed sources privy to the discussion have revealed that the assets are likely to be sold to private equity firm TPG for as much as $15 billion. This is likely to help the carrier offload a struggling business and focus more on core businesses while reducing its debt burden. However, no official statement has yet been made by any of the firms involved in the negotiation process. 3. Arista Networks, Inc. ( ANET Quick Quote ANET - Free Report) reported solid fourth-quarter 2020 results, wherein the top and the bottom line beat the Zacks Consensus Estimate, driven by healthy momentum in enterprise vertical and customer additions. Also, revenues and adjusted earnings improved year over year. Excluding non-recurring items, non-GAAP net income came in at $197.7 million or $2.49 per share compared with $183.4 million or $2.29 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 9 cents, delivering a surprise of 3.8%. Quarterly total revenues improved 17.4% year over year to $648.5 million and were well ahead of the company’s guidance of $615-$635 million. The top line surpassed the consensus estimate of $629 million. 4. United States Cellular Corporation ( USM Quick Quote USM - Free Report) reported healthy fourth-quarter 2020 results, wherein the top and the bottom line beat the Zacks Consensus Estimate. Net income in the December quarter was $5 million or 6 cents per share compared with $18 million or 20 cents per share in the year-ago quarter. The decline was due to higher interest and income tax expenses. The bottom line, however, beat the Zacks Consensus Estimate by a penny. Quarterly total operating revenues inched up 2% year over year to $1,073 million, which reflects growth in retail net additions alongside customer satisfaction. The top line surpassed the consensus estimate of $1,058 million. 5. Qualcomm Incorporated ( QCOM Quick Quote QCOM - Free Report) has teamed up with Bharti Airtel, India’s largest integrated telecom service provider, for the 5G rollout across the country. With this, the chipmaker will benefit from investments toward building a licensing program in mobile. The operator will now use Qualcomm’s 5G Radio Access Network platforms to deploy open radio access-based 5G networks. Qualcomm is one of the largest manufacturers of wireless chipsets based on baseband technology. The company is focused on retaining its leadership in the 5G chipset market and mobile connectivity. 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, Verizon has been the best performer with its stock gaining 0.2%, while Arista was the biggest loser with its stock falling 9%. Over the past six months, Arista has been the best performer with its stock appreciating 22.5%, while Verizon lost the maximum at 4.1%. Over the past six months, the Zacks Telecommunications Services industry declined 4.5% on average, while the S&P 500 has gained 12.3%. What’s Next in the Telecom Space?
In addition to 5G deployments and product launches, all eyes will stay on how the Biden administration formulates the telecom policy guidelines.
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