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Telecom Stock Roundup: AT&T-Time Warner & CenturyLink-Level 3 Communications Mergers on Track

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The U.S. telecom industry remained rather subdued over the last week. Nevertheless, a few developments were worth noting.

According to a LightReading report, U.S. telecom behemoth AT&T Inc. (T - Free Report) has gained approval from the European Commission, an institution of the European Union (EU), for its proposed $85.4 billion acquisition of the media giant Time Warner Inc. . The approval from an authority is an important milestone for the deal. However, the deal awaits further clearances from other regulatory bodies includingthe U.S. Department of Justice (DOJ).

Recently, CenturyLink Inc. (CTL - Free Report) and Level 3 Communications Inc. moved a step closer to completing their proposed merger amid overwhelming approval of the shareholders of both companies. About 96.3% of CenturyLink shareholders and more than 81.2% of Level 3 Communications shareholders have approved the deal, which isanticipated to be closed in the third quarter of 2017, subject to customary regulatory approvals.

Moreover, CenturyLink has teamed up with a multinational storage and data management company NetApp Inc. (NTAP - Free Report) . Specifically, CenturyLink has joined NetApp Unified Partner Program to re-sell storage solutions designed by the latter for enterprises and small-to-mid sized businesses (SMBs) in multiple market segments including the public sector.

Leading wireless tower operator American Tower Corp. (AMT - Free Report) recently inked a new tower lease agreement worth $100 million with one of its major clients, which might be considered a shot in the arm for the company.  Although the name of the client was not disclosed, as per FierceWireless report, the tenant is AT&T. The wireless carrier is set to deploy 40 MHz of AWS-3 and WCS spectrum of its portfolio.

U.S. telecom giant Verizon Communications Inc. (VZ - Free Report) entered into a multiyear content carriage agreement with media giant CBS Corp. . The agreement allows the retransmission of CBS-owned television stations, CW affiliates, SHOWTIME, Smithsonian Channel, and CBS Sports Network on Verizon’s FiOS TV across the U.S. However, financial terms of the deal were not disclosed.

As per a recent report by FierceWireless, U.S. national wireless carrier, Sprint Corp. (S - Free Report) has abandoned its Direct 2 You phone delivery service. The service was launched in Apr 2015 to restructure mobile retail business across the nation with a program to travel to customers' homes, offices or other convenient locations to set up their new phones. Sprint currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Read the last Telecom Stock Roundup for Mar 16, 2017.

Recap of the Week’s Most Important Stories

1.    If the proposed merger between AT&T and Time Warner finally goes through, the combined entity will become a major player in the consolidated telecom-media space. It will provide AT&T a portfolio of lucrative content. Time Warner's media empire includes HBO and Turner Broadcasting, which has the rights to sports telecast. It also owns the Warner Bros. film studio and cable networks TNT, TBS and CNN. Moreover, Time Warner owns a 10% stake in Internet video provider Hulu. (Read more: AT&T, Time Warner Deal Gets EU Approval, Awaits DOJ Nod)

2.  Both CenturyLink and Level 3 Communications provide communications services like data, voice and video transmission for large enterprises. CenturyLink expects the transaction to be accretive to free cash flow in the first full year following the deals closure and on an annual run-rate basis thereafter. The combined entity is likely to generate $975 million of annual cash synergies. (Read more: CenturyLink a Step Closer to Buying Level 3 Communications)

3.    American Tower generates most of its revenues from long-term (typically 5-10 year) tower leases with major wireless carriers. In addition, the company provides on-site maintenance and servicing of antennas, amplifiers and base station equipment. Since moving equipment from one tower to another is cumbersome, carriers normally renew these contracts upon expiration. This generates a strong long-term lease up-cycle. (Read more:  American Tower Strengthens Foothold with $100M Deal)

4.    The primary reason to discontinue Direct 2 You Phone Delivery service is owing to Sprint’s decision to utilize resources more efficiently for core businesses like wireless while scrapping all non-core businesses. Despite facing cut-throat competition in the U.S. wireless market, the company was able to add a significant 368,000 postpaid wireless subscribers in the fourth quarter of 2016. (Read more:  Sprint Discontinues Direct 2 You Phone Delivery Service).

5.    In the near future, Verizon’s FiOS TV customers will be able to stream CBS live online and on mobile devices using the CBS App as well as on Verizon's authenticated platform. Content providers are increasingly entering into agreements with content distributors which include online streaming facilities. At present, FiOS TV has approximately 4.7 million subscribers. Notably, Verizon had launched mobile video service named “go90” in 2015. (Read more:  Verizon, CBS Sign Multiyear Retransmission Deal)

Price Performance

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

Company

Last Week

Last 6 Months

VZ

-0.90%

-5.42%

T

-1.83%

0.90%

S

-5.18%

24.55%

TMUS

0.03%

33.79%

CHTR

-1.51%

16.34%

TEF

0.99%

5.84%

AMX

3.29%

21.02%

CMCSA

-2.47%

10.32%

DISH

-3.39%

14.36%

Over the last five trading sessions, share price movement of most of the major telecom stocks was negative. Sprint (5.18%) and DISH Network (3.39%) lost significantly in the same time frame. In contrast, over the last six months, the price performance of most of the major telecom stocks was positive barring Verizon. Among the stocks that gained substantially are T-Mobile US (33.79%), Sprint (24.55%), America Movil (21.02%), Charter Communications (16.34%), DISH Network (14.36%) and Comcast (10.32%).

What’s Next in the Telecom Space?

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.

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