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Telecom Stock Roundup: Verizon Plans Cost Cutting, Comcast Stops Offering Watchable

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No significant developments took place in the telecom industry last week despite its major stocks gaining value. However, a few events attracted attention.

U.S. telecom behemoth, Verizon Communications Inc. (VZ - Free Report) is planning to cut costs by up to $10 billion over the next four years. The company wants to fund its dividend with this savings, as stated by the company’s chief executive Lowell McAdam at a Goldman Sachs conference. In a separate development, Verizon has decided to aggressively cooperate with major U.S. cities in order to expand its fiber optics networks to support 4G LTE and upcoming 5G wireless standards as well as wireline connections.

Leading cable MSO (multi service operator) and media giant Comcast Corp. (CMCSA - Free Report) has shut down its standalone over-the-top (OTT) service – Watchable. The company had launched the service in September 2015. Through this offering, Comcast tried to foray into the highly lucrative digital advertising market. Comcast carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Moreover, Comcast has stepped closer toward its Software Defined Networking (SDN) virtualization plans, with the launch of Comcast Business ActiveCore SDN platform. The platform is claimed to be the first cable-delivered, gigabit-ready SDN platform in the country with Software Defined Wide Area Networking (SD-WAN) as its first business product. Comcast Business is pairing its new SD-WAN offering with Comcast’s high-performance, DOCSIS 3.1-based gigabit broadband service.

Meanwhile, U.S. telecom giant AT&T Inc. (T - Free Report) is reportedly exploring a strategic option to sell a major part of its pay-TV operations in Latin America, per Reuters. The company acquired these assets as part of its $49 billion takeover of the satellite TV operator DIRECTV. The sale proceeds will be used to finance the company’s proposed acquisition of U.S. media behemoth Time Warner Inc. (TWX - Free Report) for $85.4 billion.

Leading wireless chipset manufacturer, Qualcomm Inc. (QCOM - Free Report) is reportedly partnering with semi-conductor company Himax Technologies, Inc. (HIMX - Free Report) to launch a high-resolution 3D sensing camera system for smartphones and automobile. Qualcomm aims to combine its computer-vision expertise with Himax Technologies’ wafer-level optics (WLO) technology and module integration capability to create a 3D camera module.

Outside the United States, Mexican telecom behemoth America Movil SAB (AMX - Free Report) is aggressively being resisted by its rivals from taking part in the upcoming 2.5 GHz wireless spectrum auction in the country. America Movil’s rivals have pointed out to the Mexican telecom regulator that the company should be banned from taking part in the 2.5 GHz spectrum auction, or this will lead to excessive spectrum going into the hands of a particular wireless operator, which controls nearly 68% of the Mexican wireless space.

Read the last Telecom Stock Roundup for Sep 15, 2017.

Recap of the Week’s Most Important Stories

1.    At the recently concluded Goldman Sachs 26th Annual Communacopia Conference, Verizon’s chairman and CEO Lowell McAdam stated that the company is no longer interested in acquiring big cable MSOs (multi-service operators). Instead, it will strengthen its fiber-based networks. In the cities of Boston and Sacramento, Verizon has already started upgrading the city’s aging copper-network infrastructure with fiber and wireless network to support high-end mobile and wireline services for smart city, residential and business applications.   (Read more: Verizon to Bolster Fiber Optic Network in Major U.S. Cities)

2.    The ad-supported Watchable offered non-exclusive, unlicensed and original content of 30 digital content developers. Customers were able to view Watchable on Comcast’s Xfinity X1 set-top boxes and online at Watchable.com, as well as on mobile devices such as smartphones and tablets through iOS and Android-compatible applications. The company has decided to integrate these contents with its Xfinity pay-TV platform based on X1 set-top boxes. (Read more: Comcast Stops Offering Watchable Digital Video Platform)

3.    With respect to the Time Warner merger, AT&T has yet to get regulatory approval from two countries. Beside the home country United States, the other is Brazil. CADE, the antitrust agency of Brazil, has argued that the approval of the deal will violate the agency’s stated policy of the separation of service providers and content developers. For that, CADE wants AT&T to disinvest its pay-TV assets in that country. (Read more: Is AT&T Considering Divesting Latin American Pay-TV Assets?)

4.    Himax Technologies is gearing up with its augmented reality and 3D sensing work. Qualcomm, through its Snapdragon chips in smartphones, is well positioned to take advantage of the secular growth in smartphone 3D cameras. The company seems to have made a strategic business move by partnering with Himax Technologies to bring the technology to the market. Additionally, Qualcomm can deploy its 3D sensing camera module for automotive applications as well. (Read more:  Qualcomm to Tie Up With Himax, Boost AR Applications)

5.    Last month, Mexico’s telecom regulatory authority -- IFT -- had started public consultations for the upcoming auction of wireless spectrum (airwave) in the 2.5GHz (2500-2690MHz) frequency band. In July 2017, America Movil, the undisputed leader of the Mexican telecom market, purchased 60 MHz of wireless spectrum in the 2.5 GHz band from Grupo MVS. For the last couple of years, America Movil has been systematically enriching its spectrum portfolio. (Read more:  America Movil Faces Objections for 2.5 GHz Airwave Auction)

Price Performance

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

Company

Last Week

Last 6 Months

VZ

4.59%

-1.36%

T

5.00%

-8.67%

S

2.93%

-3.02%

TMUS

1.37%

1.68%

CHTR

-4.69%

14.45%

TEF

1.78%

-2.34%

AMX

0.60%

31.21%

CMCSA

-1.21%

1.05%

DISH

0.37%

-13.43%

In the last five trading sessions, share price movement of major telecom stocks was predominantly positive. AT&T (5.00%) and Verizon (4.59%) gained while Charter Communications saw a significant decline of 4.69%. In contrast, price performances of almost all major telecom stocks were negative in the last six months. While DISH Network (13.43%) lost substantially, America Movil (31.21%) and Charter Communications (14.45%) gained significantly in the same time frame.   

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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