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Telecom Stock Roundup: Verizon Go90 Pullout, China Mobile's US Entry Block & More

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In the last five trading days, telecom stocks witnessed a sharp rise initially as China eased some foreign investment curbs but fell slightly thereafter to maintain a flat trajectory. The stocks regained the lost ground later in the week due to temporary relief to ZTE to resume some business activities.

Amid the looming trade war tensions between the United States and China, the communist nation took a positive step toward easing the limits on foreign ownership in some of its closely guarded sectors. The proposed structural changes include a step-by-step increase in foreign ownership in sectors like finance, transportation, professional services and manufacturing of autos, ships and aircraft. China also published a revised ‘negative’ list for investment in free trade zones and promised to ease curbs in the telecommunications sector among others.

The move was reciprocated to some extent by the U.S. administration when the Commerce Department’s Bureau of Industry and Security offered partial respite to ZTE by authorizing it to resume some business activities from Jul 2 until Aug 1. This would allow China’s second biggest telecommunications equipment manufacturer to support existing networks or equipment under contracts signed on or before Apr 15 — the day on which its seven-year ban was imposed. Although ZTE’s fate post the deadline still remains clouded, it is expected to be in compliance with all the demands of the Trump government by the end of this month to evoke a suspension of the ban.   
Regarding company-specific news portfolio restructuring, acquisitions and new investments for network expansion ruled the roost over the last five trading days.

Recap of the Week’s Most Important Stories

1.    In less than three years after its launch with much fanfare in October 2015, Verizon Communications Inc. (VZ - Free Report) has decided to discontinue its mobile video app Go90 from August this year. The strategic decision is largely driven by a lackluster business response from the Millennials, who are the primary target segment for the app.

With rich ad formats and appealing video content, Oath has emerged as the prime business division of Verizon in the mobile video market. Accordingly, the company has decided to pull the plug on Go90 on Jul 31 and return shows and content rights to its production partners. (Read more: Verizon to Discontinue Go90 Mobile Video App for Millennials)

2.    In order to settle an investigation relating to two call outages in 2017 to emergency number 911, AT&T Inc. (T - Free Report) has decided to pay a fine of approximately $5.3 million to the Federal Communications Commission (“FCC”). The company has also pledged to take corrective actions to avoid recurrence of the incidents that have hurt its credibility.

The outages pertain to two separate events, one in March 2017 that lasted about five hours and the other in May that lasted 47 minutes. While the first incident affected 12,600 unique users, the second affected 2,600, preventing them from making emergency calls to 911. (Read more: AT&T to Settle '911' Call Outages Investigation With FCC)

3.    Adding pressure to the already strained relationship between the United States and China, the Trump administration has sought to block the entry of China Mobile Limited (CHL - Free Report) in the country, citing security concerns. China Mobile is reportedly the largest telecom carrier in the world with about 899 million subscribers.

The long-pending application is proposed to be summarily rejected as China Mobile Communications Corp, a state-controlled firm, own almost 73% of China Mobile and would provide the Communist government undue access to the U.S. telecom market for economic espionage and intelligence collection. The company likely posed a U.S. security threat and law enforcement risk given its profound influence and control by the Government of China. (Read more: China Mobile Faces US Entry Setback on Security Issues)

4.    Cincinnati Bell Inc. (CBB - Free Report) has completed the acquisition of Hawaiian Telcom Holdco, Inc. The merger takes Cincinnati Bell a step forward toward expanding its portfolio of next-generation fiber offerings and securing fiber density value for customers and shareholders.

The combined entity is likely to be a stronger communications and technology company. The strategic move will boost innovation and build scale and fiber density across Cincinnati Bell’s footprint, enabling it to offer more competitive products and services, including continued expansion of Next Generation Fiber Network to customers across Hawai‘i. (Read more: Cincinnati Bell Completes Acquisition of Hawaiian Telcom)

5.    TELUS Corporation (TU - Free Report) has announced that it is investing $110 million to connect more than 90% of homes and businesses in Richmond and Steveston, directly to its fibre optic network. The construction work is currently progressing well, with the company expecting to connect most of the homes and businesses throughout the region by spring of 2019.

With a direct connection to the TELUS PureFibre network, customers will be able to enjoy the fastest symmetrical upload, download speeds and the most reliable network technology, making it the best network available in Richmond. Moreover, this new infrastructure is believed to be the backbone of TELUS’ wireless network as it allows more wireless capacity and faster speeds and lays the groundwork for 5G technologies. (Read more: TELUS Invests $110M for Fibre Optic Network in Richmond)

Price Performance

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

In the last five trading days, AT&T was the major gainer with its share price increasing 3.2%. SBA Communications Corporation (SBAC - Free Report) was the major decliner with its stock losing 0.9%.

Over the last six months, Motorola Solutions, Inc. (MSI - Free Report) was the best performer with its stock appreciating 19.9% while Qualcomm Incorporated (QCOM - Free Report) declined the most with its shares falling 19.8%.

Over the last six months, the Zacks Telecommunications Services industry has underperformed the benchmark S&P 500 Index with an average fall of 10.1% compared with a decline of 1% for the latter.

What’s Next in the Telecom Space?

In addition to continued product launches and deployment of 5G technologies, all eyes will remain glued to the proposed $34 billion worth of U.S. tariffs on China set to be imposed by the weekend and the latter’s retaliation to it. Although China has vouched that it will not ‘fire the first shot’ in the impending trade war, it threatened to match the U.S. tariffs dollar by dollar, jeopardizing the global trade equilibrium in the aftermath.

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