For Immediate Release
Chicago, IL – April 05, 2017 – Today, Zacks Equity Research discusses the Industry: Telecom, Part 2, including Verizon Communications Inc. (NYSE: (VZ - Free Report) – Free Report ), AT&T Inc. (NYSE: (T - Free Report) – Free Report ), Comcast Corp. (NASDAQ: (CMCSA - Free Report) – Free Report ) and DISH Network Corp. (NASDAQ: (DISH - Free Report) – Free Report ).
Industry: Telecom, Part 2
We expect the U.S. telecommunications industry to witness growth in 2017 more or less in line with the broader market. This industry has of late emerged as an intensely contested space where success largely depends on technical superiority, the quality of services and scalability.
Internet of Things (IoT): The Next Growth Driver
IoT, which enables any physical electronic device with a valid IP-address to transfer data seamlessly over a wireless network, is quickly gaining significant market traction and bringing about fundamental changes in business models. Next-generation superfast wireless networks (4G LTE, LTE-A, upcoming 5G) will provide the primary impetus to the telecom industry. In this context, IoT holds the potential to be the #1 factor in driving future growth in the space.
IoT is a network of physical objects embedded with electronics, software, sensors and connectivity that facilitates it to achieve greater value and service by exchanging data with other connected devices. Superfast 5G mobile networks will be of utmost importance in the management of exponential growth in IoT.
Mobile Video Business: Gains Ground
Internet TV is gradually gaining a strong foothold in the U.S. The legacy pay-TV industry in the country has been facing severe challenges from online video streaming service providers. The low-cost over-the-top video streaming service has resulted in massive cord cutting that is currently threatening the pay-TV business model.
Internet TV has emerged as a strong alternative to counter this competitive threat. At present, the web-based digital media market is growing by leaps and bounds. Digital media brands are gaining immense popularity especially among the younger generation. With demand for smartphones and tablets on the rise, target customers are increasingly watching videos online, and preferring them over costlier legacy pay-TV connections.
Gradually, more customers are using the Internet to watch videos, and they want mobility of their content. This provides wireless operators an opportunity to differentiate their products by offering access to select content through their networks. By making deals directly with content developers, wireless carriers are trying to draw customers with "bundles" of content such as streaming entertainment or sporting events, possibly with no additional data charges.
At present, major pay-TV operators in the U.S. are offering Internet TV services. These include Verizon Communications Inc. (NYSE: (VZ - Free Report) – Free Report ), AT&T Inc. (NYSE:(T - Free Report) – Free Report ), Comcast Corp. (NASDAQ: (CMCSA - Free Report) – Free Report ) and DISH Network Corp. (NASDAQ: (DISH - Free Report) – Free Report ). All the four stocks mentioned above currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
Online Digital Advertisement: Prospects Solid
Advertisement on the mobile video platform is gradually shifting from simple selling of banner ads on the mobile web to automated or programmatic ad selling. Pay-TV operators are steadily adopting the data-driven advertising technique that is already popular in the web-based advertisement arena.
To derive maximum synergies from the combined video content and video distribution platform, these companies are extensively penetrating into the advertising technology market. Inclusions of dynamic ad-insertion, targeted audience advertising and data-driven TV advertisements are steps toward this objective. According to market research company eMarketer, the global mobile ad market value is expected to reach a worth of $133.7 billion by 2017.
The telecommunications industry as a whole offers a number of positives that are difficult to disregard from the standpoint of investors.
• Immune to External Disturbances: A major characteristic of the telecommunications industry is that it is immune to any international geo-political disturbance even when it leads to economic fluctuations. Thus, the ongoing sovereign debt crisis in Europe, the slowdown in China or other non-U.S. economic volatility may not have any immediate impact on the industry.
• High Barrier to Entry: The lack of public airwaves (spectrum) in the telecommunications industry creates a high barrier to entry. The U.S. telecom market is controlled by just four national players, as regional low-cost operators are not eligible to compete with large carriers. Furthermore, it is not easy for a new telecom carrier to establish itself in the market as it requires government approval to transmit voice, data, and video on public airwaves. Spectrum licenses are limited and therefore quite expensive. Moreover, the deployment of network infrastructure requires significant capital expenditure, which very few entities can afford. Thus, this barrier protects the profits of incumbents in the telecom space.
• Strong Demand: A recovering economy drives demand for real-time voice, data and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions while upgrading plans. Moreover, the FCC projects mobile data demand growth of 25 - 50 folds over the next five years.
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