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Telecom Stock Roundup: T-Mobile US-Sprint Mulling Merger, CenturyLink-Level 3 Communications Deal Gets DOJ Nod

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Last week was pretty eventful for the telecom industry despite most major telecom stocks losing value.

T-Mobile US Inc. (TMUS - Free Report) and Sprint Corp. (S - Free Report) , the third and fourth-largest wireless carriers in the United States, are reportedly discussing the tentative terms for their proposed stock-for-stock merger. A number of reports have stated that Sprint’s shareholders and its parent company Softbank will own 40-50% of the combined entity. T-Mobile US’ shareholders, including Deutsche Telekom, will own the majority of the stake. T-Mobile US’ CEO John Legere is likely to lead the merged company if the deal falls in place. Both companies expect to reach an agreement by the third week of October.

The much-hyped merger between CenturyLink Inc. (CTL - Free Report) and Level 3 Communications Inc. (LVLT - Free Report) received regulatory approval from the U.S. Department of Justice (DOJ), subject to certain outlined conditions, including court approval of certain provisions. However, the pending merger still awaits regulatory approval from the Federal Communications Commission (FCC) and the California Public Utilities Commission, along with other customary closing conditions. The deal is anticipated to be closed in the third quarter of 2017.

According to a report by Globo, the Brazilian antitrust agency, CADE, is likely to approve AT&T Inc.’s (T - Free Report) proposed acquisition of Time Warner Inc. (TWX - Free Report) . Beside the home country United States, Brazil is the other that is yet to give regulatory nod to this deal. Earlier, CADE had argued that the approval of the deal would violate the agency’s stated policy of separation of service providers and content developers.

Meanwhile, regional wireline operator Cincinnati Bell Inc. (CBB - Free Report) has completed the $201-million acquisition of OnX Enterprise Solutions. The company took this step to expand its network and enterprise IT services. The takeover will help the company in becoming a hybrid IT solutions provider.

U.S. telecom behemoth, Verizon Communications Inc. (VZ - Free Report) is reportedly launching customer-friendly prepaid family plans to attract more subscribers. We believe that such a strategy to remain competitive and strengthen foothold in the wireless industry will benefit Verizon. Moreover, Verizon is reportedly seeking permission from the FCC to discontinue four legacy interstate DS0 services across parts of seven states.

Satellite TV operator DISH Network Corp. (DISH - Free Report) has become the first pay-TV operator to offer a whole-home 4K programming services of Netflix Inc. (NFLX - Free Report) via its Hopper 3 DVRs. The company announced that the streaming video-on-demand operator’s content can be viewed throughout the home. DISH Network currently carriers 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 Sep 21, 2017.

Recap of the Week’s Most Important Stories

1. The pairing of T-Mobile US, which has about 70 million subscribers, and Sprint with its nearly 54 million user base, will become a formidable entity which can challenge the telecom market supremacy of Verizon and AT&T, with their almost 135.7 million and 114.5 million subscribers, respectively. Several analysts have also estimated that the merger would help the companies save as much as $4 billion annually. They will also witness higher prices eventually. (Read more: Are Sprint & T-Mobile US Considering a Stock-for-Stock Deal?)

2. The proposed merger of CenturyLink and Level 3 Communications, which was announced in November 2016, has already received approvals from almost 24 states and territories. The combined company will offer customers a broader and more complementary range of services and solutions, and enable the advanced technology and growing bandwidth needs of its business, government and consumer customers. (Read more:  CenturyLink, Level 3 Communications Deal Gets DOJ Approval)

3. At present, AT&T holds 93% Sky Brasil along with PanAmericana satellite and cable TV services. The company has 13.6 billion subscribers across Brazil, Venezuela, Argentina, Colombia, Peru, Ecuador, Chile and Uruguay. Notably, Brazil solely commands 5.52 million customers. In the second quarter of 2017, Latin American business generated $1.4 billion in revenues, half of which came from Sky Brasil. Notably, Sky Brazil currently holds about 29% of the pay-TV market in Brazil. (Read more:  Is AT&T Nearing Brazil's Approval for Time Warner Merger?)

4. With Verizon’s new service, customers can choose a single specific plan for each member of the family, enabling them to customize individual monthly data plans. Verizon had previously targeted prepaid customers too. In April 2017, Verizon introduced its unlimited prepaid plan with unlimited data, talk and text for $80 a month. Video streaming was limited up to 480p. (Read more:  Verizon to Gain From Customer-Friendly Prepaid Plans)

5. Up to seven TVs in the home can stream 4K services of Netflix using DISH Network’s 4K Joey which will be added with Netflix’s apps. Customers should have Hopper 3 DVRs and 4K Joey, and be a subscriber of Netflix’s $11.99-a-month 4K service. They also need 4K-enabled TV set and robust broadband access supporting at least 25 Mbps download speeds. DISH Networks is already streaming Netflix’s programs through its over-the-top (OTT) Sling TV video streaming service. (Read more:  DISH Network Launches 4K Netflix Programs on Hopper DVR)

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

0.57%

2.28%

T

0.87%

-2.66%

S

-3.60%

-10.39%

TMUS

-0.23%

-3.24%

CHTR

1.73%

11.82%

TEF

-3.06%

-5.25%

AMX

-1.46%

21.46%

CMCSA

-0.34%

0.85%

DISH

-0.37%

-13.62%

In the last five trading sessions, share price movement of major telecom stocks was predominantly negative. Sprint (3.60%) and Telefonica (3.06%) lost significantly during this period. However, price performances of most of the major telecom stocks witnessed a mixed trend in the last six months. While America Movil (21.46%) and Charter Communications (11.82%) gained remarkably, DISH Network (13.62%) and Sprint (10.39%) lost substantially 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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