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Analyst Blog

The telecom industry had a steady run on the bourse last week as most of the key stocks traded in the green.Several significant developments ruled the headline with Charter Communications Inc. (CHTR - Analyst Report) at the forefront.

The company has announcedthat it will foray into the wireless market. Charter Communications will activate its MVNO (mobile virtual network operator) agreement with Verizon Communications Inc. (VZ - Analyst Report) , which was taken over post the acquisition of Time Warner Cable.The company will also install several WiFi hotspots across cities to expand its wireless network.

Additionally, Charter Communications recently entered into an agreement withU.S. national wireless carrier T-Mobile US Inc. (TMUS - Analyst Report) to sella license of 700 MHz A Block spectrum for Eastern Montana to the latter. The spectrum will cover 600,000 POPs (point of presence) and 120,000 square miles of geographical area. However, the financial terms of the contract are yet to be disclosed.

According to a recent report by technology news website Recode, U.S. telecom behemoth Verizon is in talks to purchase the new video-online subscription service, Vessel.Launched in 2015, Vessel is a mobile-video start-up which allows content creators to earn more than one can on YouTube.

According to a recent Bloomberg report, U.S. telecom behemoth AT&T Inc. (T - Analyst Report) will shut down its DIRECTV satellite TV services in a phased manner within the next 3 to 5 years.Going ahead, AT&T has already hinted that its upcoming “DIRECTV Now”, over-the-top (OTT) Internet TV service, which will offer video streaming facilities, will be its next-generation video platform. 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, Comcast Corp. (CMCSA - Analyst Report) has agreed to take over a 24% stake in sports and entertainment company Comcast Spectator from its Chairman, Ed Snider. With the purchase, Comcast will gain full control over Comcast Spectator.

Moreover, U.S. regional telecom operator CenturyLink Inc. (CTL - Analyst Report) plans to launch OTT services in the beginning of 2017. The growing momentum of CenturyLink’s Prism IPTV service has prompted the company to plan the OTT launch.

In a separate development, DISH Network Corp. (DISH - Analyst Report) is facing charges from a federal whistleblower and some of its business partners, claiming that the company owes about $540 million to the Federal Communications Commission (FCC). DISH Network has supposedly claimed unscrupulous discounts in relation to the AWS-3 wireless spectrum auction held in 2014.

Outside the U.S., Rogers Communications Inc. (RCI - Analyst Report) , the largest integrated telecom operator in Canada, has decided to discontinue the Shomi video streaming service from Nov 30, 2016. Shomi is a joint venture between Rogers Communications and Shaw Communications Inc. (SJR - Analyst Report) . Shomi became operational in Aug 2014. The main reason for the discontinuation of the Shomi video streaming service is the competitive threat from the U.S.-based video streaming service provider Netflix Inc. (NFLX - Analyst Report) , which also has a strong presence in Canada.

On the other hand, Rogers Communications’ subsidiary, Rogers Media, Inc., signed a deal to purchase radio broadcasting company – Tillsonburg Broadcasting Company Ltd.

Mexican telecom behemoth America Movil SAB (AMX - Analyst Report) seems to be focused on shifting its business centre from the Mexican telecommunication market to that in Brazil. The Mexican telecom giant is reportedly willing to purchase Oi S.A., the biggest telecom operator in Brazil. The company’s rationale behind this move is to shift from the region as regulatory measures and intensifying competition in Mexico are weakening its market position and resulting in low profits.

Read the last Telecom Stock Roundup for Sep 22, 2016.

Recap of the Week’s Most Important Stories

1.    Charter Communications will provide its wireless network services under the MVNO deal with Verizon. It involves utilizing Verizon’s wireless network to provide mobile phone services in lieu of a lease payment. Additionally, Charter Communications will try installing several Wi-Fi hotspots across cities to expand its network. We believe that the entry of cable MSOs into the wireless space will intensify competition among the incumbent players in the industry. (read more: Charter Communications Plans to Enter Into Wireless Space.)

2.    At present, 4G LTE network covers 312 million POPs of T-Mobile US, of which 700 MHz LTE network covers 215 million POPs. The company aims to takeover 700 MHz licenses, covering 269 million POPs. Notably, in Dec 2015, T-Mobile US got the FCC’s nod to swap certain AWS-1 and PCS spectrum licenses with Verizon in various markets across the U.S. In another deal, in May 2016, T-Mobile US entered into an agreement with AT&T to acquire spectrum in the 700 MHz band. (read more: T-Mobile US to Buy Spectrum from Charter Communications.)

3.    Verizon is currently focusing on online content delivery, mobile video and online advertising for growth. These businesses have the potential to generate significant revenues, especially when the company’s legacy telecom business is facing serious pricing competition. According to eMarketer, the global mobile ad market value is expected to reach a worth of $133.7 billion by 2017. If the deal finally matures, then a platform like Vessel should prove to be an add-on to Verizon’s media assets. (read more: Is Verizon Mulling to Buy Mobile Video Start-up Vessel?)

4.    In Mar 2016, AT&T announced plans to offer a version of its DIRECTV satellite TV service through the Internet, which would not require customers to have a satellite dish, set-top box or annual contract. The company will be offering three affordable video plans in order to appeal to all types of viewers, ranging from those who want the full package to a streamlined bundle. With DIRECTV Now, the company plans to offer a full range of live channels and on-demand shows. DIRECTV mobile version will be providing a package of premium and made-for-the-Web video service, particularly intended for smartphone users. (read more:  Will AT&T Close Satellite TV for Video Streaming Service?)

5.    As a result of the Shomi streaming video service shutdown, Rogers Communications will incur a loss of C$100 million to C$140 million ($75 million to $105 million) as experiment costs in the third quarter of 2016. Shaw Communications wrote down its part of the joint venture in Jul 2016, incurring a C$51 million accounting charge. (read more: Rogers Communications to Close Video Streaming Service.)

Price Performance

The following table shows the price movement of the major telecom players over the past week and the last six months.


Last Week

Last 6 Months




























Over the last five trading sessions, share price movement of most of the major telecom stocks was positive. Sprint (5.29%) and DISH Network (3.12%) gained significantly in the last five trading sessions. Similarly, over the last six months, the price performance of most telecom stocks was predominantly positive. Among the stocks that gained considerably were Sprint (98.25%), T-Mobile US (21.81%), China Mobile (17.10%), DISH Network (15.81%) and Comcast (10.76%). In contrast, America Movil lost 24.05% 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. However, U.S. pending home sales data, initial claims data and the final estimate of the second-quarter 2016 U.S. GDP are set to be released in the coming week that we believe will be closely monitored by investors for a peek into the current U.S. macroeconomic picture.

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