Last week has been pretty eventful for the telecom industry. Among the slew of developments, leading cable MSO (multi service operator) Comcast Corp. (CMCSA - Analyst Report) plans to venture into the U.S. wireless market by mid-2017. The company will offer mobile services either through its WiFi network or via the wireless link of Verizon Communications Inc. (VZ - Analyst Report) with whom it has a MVNO (mobile virtual private network) agreement.
Additionally, Comcast will launch the beta version of its X1 platform using Netflix Inc. (NFLX - Analyst Report) services within the next few days. Instead of merely introducing the app, Comcast plans to integrate Netflix into the X1 system, featuring voice controls and search results among other things.
U.S. telecom behemoth AT&T Inc. (T - Analyst Report) also stayed in the headlines for various reasons. The company has announced ‘AirGig’ – a project which aims at extending 4G LTE and the upcoming 5G wireless network coverage through the existing power grid lines. Although the project is at its nascent stage, if successful, AT&T can deliver high-speed Internet services to underserved parts of the country at a low cost.
Moreover, AT&T has decided to systematically phase out its long-standing U-verse brand, which consists of fiber-based triple-play video (TV), voice (telephony) and high-speed broadband (Internet) offerings.Recently, AT&T announced that the company will terminate its U-verse broadband and voice brands.In the future, even the DIRECTV satellite TV brand likely to be renamed, symbolizing the company’s transition to a single entertainment portfolio.
In a separate development, AT&T and French telecom Orange S.A. (ORAN - Analyst Report) have teamed up on open source initiatives in order to accelerate the standardization of software-defined networking (SDN) and network function virtualization (NFV). AT&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Meanwhile, national wireless carrier T-Mobile US Inc. (TMUS - Analyst Report) recently provided a peek into its third-quarter 2016 earnings report, which is scheduled to release this October. Reports state that the company has added 753,000 branded postpaid phone customers since Jul 1, 2016, compared with 646,000 customers in the second quarter of 2016. T-Mobile US has also made to reach out to 650,000 prepaid net customers till date for the third quarter of 2016. Furthermore, T-Mobile US is forging ahead with its 5G expansion plans wherein it has started higher speed tests with major equipment partners – LM Ericsson (ERIC - Analyst Report) and Nokia Corp. (NOK - Analyst Report) .
According to a recent Bloomberg report, CenturyLink Inc. (CTL - Analyst Report) , a regional telecom operator in the U.S., is forging ahead with plans to cut 8% of its labor force which amounts to almost 3,000 to 3,500 workers. This decision will help the company to reduce its expenditures and deal with the fall in its legacy voice services revenues.
Several major developments grabbed headlines outside the U.S. as well. Liberty Global plc (LBTYA - Analyst Report) , globally a leading cable MSO, has reached a long-term agreement with Netflix wherein the latter will be allowed to offer its content on the former’s cable network. The service will be available in 30 countries where Liberty Global operates. Notably, Liberty Global recently announced the launch of its first next-generation DOCSIS 3.1 service in 2017.
Other major news include Spanish telecom behemoth Telefonica SA’s (TEF - Analyst Report) recent IPO (initial public offering) prospectus filing for its infrastructure division Telxius, to the Spanish stock market regulator. In addition, Nokia Networks, a division of Nokia, has decided to overhaul its corporate strategy with a major emphasis on the enterprise service segment.
Read the last Telecom Stock Roundup for Sep 15, 2016.
Recap of the Week’s Most Important Stories
1. Combining Netflix’s attractive content portfolio with its own cable TV system will help Comcast expand its subscriber base. Meanwhile, the partnership will prove equally beneficial for Netflix. Cable MSO’s recently started offering Internet TV services. Even so, their offerings could not match the ease and feasibility of the OTT service. This spurred cable operators to partner with video streaming providers for offering the latter’s service through a regular set top box. (read more: Comcast to Roll Out Netflix Beta on X1 Platform.)
2. In the U.S., people in the rural areas face connectivity issues and low Internet speeds. Moreover, fiber deployment in these underserved areas has been slow. With power grids already existing in these areas, the new AigGig technology shall be suitable for distribution of AT&T’s wireless network in these areas. This will result in increased customer addition. Additionally, AT&T’s new technology will provide power companies a range of smart grid applications to manage power transmission in a better manner. (read more: Is AT&T's AirGig Technology the Next Big Thing in Telecom?)
3. After acquiring DIRECTV, the largest satellite TV service provider in the U.S., AT&T is driving its new TV customers to DIRECTV’s offerings instead of its own U-verse TV service. Although the company is supporting its existing U-verse IPTV subscribers, it is not clear how long AT&T will continue with fiber-based TV offering. The company is strategically shifting its TV U-verse customers to the DIRECTV brand. This move will free up very important bandwidth on its fiber-optic network, which AT&T can utilize to offer higher data transmission speeds to its high-speed broadband users. (read more: AT&T to Phase Out U-verse Brand, Upgrade Plans.)
4. T-Mobile US believes that its innovative network expansion methodologies have helped drive substantial consumer growth. In order to lure customers from competitors, T-Mobile US has been launching several low-priced service plans through varied promotional and advertising schemes for individuals as well as small business entities. Several analysts estimate that the company has managed to gain customers from the other three major U.S. wireless carriers. (read more: T-Mobile US: Sneak Peek into Q3, Subscriber Growth High.)
5. Combining Netflix’s attractive content with its own cable TV system will help Liberty Global’s cable TV services gain more viewers. Moreover, such a partnership will prove beneficial to Netflix as well. The OTT market is slowly becoming a much contested space as an increasing number of telecom operators are coming up with video streaming services. Thus, we believe that this partnership is a win for both the companies. (read more: Liberty Global Adds Netflix App to Set-Top Boxes.)
The following table shows the price movement of the major telecom players over the past week and the last six months.
Last 6 Months
Over the last five trading sessions, share price movement of major telecom stocks witnessed a mixed trend. DISH Network (5.45%) and Comcast (3.05%) gained significantly in the last five trading sessions. However, over the last six months, the price performance of most telecom stocks was predominantly positive. Among the stocks that gained considerably were Sprint (88.72%), T-Mobile US (23.07%), China Mobile (14.68%), Comcast (12.18%) and DISH Network (10.68%). In contrast, America Movil lost 24.64% over the same time frame.
What’s Next in the Telecom Sector?
We do not foresee any significant changes in the telecom industry or overall global economic factors that can affect the industry in the coming week. Therefore, we expect stocks to trade in line with the broader market movement.
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