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Analyst Blog

Last week has been quite a lull for the U.S. telecom industry. Nevertheless, few developments made it to the headlines.

Telecom and pay-TV behemoth AT&T Inc. (T - Free Report) finally launched the much-awaited DirecTV Now mobile video streaming service, marking the company’s entry into the OTT space. Additionally, the company announced a new video platform for all of its video and television services.

In addition, AT&T and DISH Network L.L.C., a wholly-owned subsidiary of satellite TV operator DISH Network Corp. (DISH - Free Report) , along with British multinational advertising and public relations company WPP Group plc jointly announced plans to acquire advertising firm INVIDI Technologies.

Meanwhile, T-Mobile US Inc. (TMUS - Free Report) – the fastest growing wireless carrier in the U.S. – has been accused of dodgy accounting practices by the CtW Investment Group. Present Securities and Exchange Commission (SEC) rules allow companies to report non-GAAP performance metrics.

However, since non-GAAP measures are generally presented as per the discretion of management, companies are required to show a reconciliation statement detailing the exact reasons for the difference between the GAAP and the non-GAAP numbers. CtW group claims that T-Mobile US has provided inadequate details on the same.

According to a recent report by telecom giant Verizon Communications Inc. (VZ - Free Report) Enterprise Solutions' third annual Verizon Retail Index, the average daily eCommerce traffic volumes to U.S.-based retailers on Black Friday were up 9% year over year while peak ecommerce volumes were 39% higher than 2015 levels, indicating increased consumer engagement through digital platforms.

Moreover, Thanksgiving drove eCommerce traffic by 10% year over year while peak eCommerce volumes were 22% higher than 2015 levels. Verizon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Further, Verizon and Riverbed Technology have formed an alliance to create a hybrid cloud computing structural design based on Amazon.com, Inc.’s (AMZN - Free Report) Amazon Web Services (AWS). The architecture, dubbed as AWS Direct Connect Solution, will help the telecom giant meet the growing hybrid cloud computing demand from enterprise customers.

Regional telecom service provider Cincinnati Bell Inc. (CBB - Free Report) recently announced an alliance with eero inc., maker of the world’s first whole-home WiFi system. As per the deal, Cincinnati Bell will be offering eero’s whole-home Wi-Fi system at eight of its retail stores across Greater Cincinnati.

In a separate development, telecom and data service firm Windstream Holdings, Inc. (WIN - Free Report) plans to discontinue the DSL (digital subscriber line) service it offers to small and medium-sized businesses (SMB) and residential customers in CLEC (competitive local exchange carrier) territories across 25 states.

Read the last Telecom Stock Roundup for Nov 24, 2016.

Recap of the Week’s Most Important Stories

1.    The basic package of DirecTV Now comprising 60 channels is priced at around $35 per month. Other packs range from $50 to $70 a month which will offer a wider range of channels. Moreover, since AT&T operates its own wireless network, the company can price its DirecTV Now offering by bundling wireless data packages with the OTT service. This will help draw new wireless customers. (read more:  AT&T Launches DirecTV Now Service on New Video Platform.)

2.    AT&T, DISH and WPP have decided to maintain INVIDI’s current operations along with its current employees in their current locations. INVIDI has offices in Princeton, NJ, Newtown, PA, New York, Denver, CO and Edmonton, Alberta, Canada. Moreover, INVIDI will continue operating independently under the companies’ collective ownership. Also, each of its new owners will appoint representatives to INVIDI’s board of directors. Meanwhile, AT&T will be holding a controlling stake in the company. (read more:  AT&T, DISH Network & WPP to Acquire INVIDI Technologies.)

3.      The CtW group’s claims are largely focused on the revenue estimates adopted for accounting of T-Mobile US’ Equipment Installation Plans (EIP). Additionally, T-Mobile US has been held accountable for providing a lower amount of credit loss allowance while in reality, its customers have been unable to meet their contractual obligations. Thus, by disregarding the credit risks associated with the EIPs, T-Mobile US may have inappropriately boosted its profits. (read more:  Is T-Mobile US in Trouble for Accounting Practices?)

4.    The Verizon Retail Index specializes in consumer ecommerce traffic during the holiday shopping season. The index also tracks eCommerce traffic across Verizon's broadband networks. The index monitors network traffic throughout the holiday shopping season, including events such as Black Friday and Cyber Monday. The escalation in eCommerce and mCommerce traffic on Black Friday implies that the telco’s efforts to expand its digital-video network have paid off. Verizon has also been engaged in a number of digital ventures. (read more:  Verizon Retail Index Sees High eCommerce Holiday Traffic.)

5.    By offering eero’s line of products in its retail stores, Cincinnati Bell will be able to grow its FTTH (Fiber to the home) customer base. FTTH is presently the fastest growing method of providing higher bandwidth to consumers and businesses, thereby enabling enhanced video, Internet and voice services. Further, the eero home-WiFi system is easy to install and use. Customers will also be able to use WiFi connections through multiple access points throughout their homes to create a wireless mesh network. (read more:  Cincinnati Bell to Offer eero WiFi Products at Retail Stores.)

Price Performance

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

Company

Last Week

Last 6 Months

VZ

0.42%

-1.96%

T

0.00%

-1.33%

S

3.14%

106.32%

TMUS

-0.63%

26.78%

VOD

-0.81%

-12.65%

CHL

1.64%

-3.12%

AMX

4.58%

-1.14%

CMCSA

-0.44%

9.81%

DISH

2.10%

15.13%

Over the last five trading sessions, share price movement of major telecom stocks witnessed a mixed trend. America Movil (4.58%) and Sprint (3.14%) gained considerable value over the same time frame. Similarly, over the last six months, the price performance of most telecom stocks was mixed. Among the stocks that gained significantly were Sprint (106.32%), T-Mobile US (26.78%) and DISH (15.13%). On the other hand, Vodafone lost 12.65% in the same time period.

What’s Next in the Telecom Industry?

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. Consequently, we expect stocks to trade in line with the broader market movement.

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