In the past five trading days, telecom stocks have steadily moved uphill as both the United States and China continued trade negotiations despite the undercurrents related to Huawei CFO, Meng Wanzhou.
Although Meng has been granted bail after her detention and eventual arrest by the Canadian government, the matter remained a potboiler as she faced probable extradition to the United States over Huawei’s potential violations of sanctions on Iran. The Sino-American tensions elicited strong protests from China against the perceived undemocratic act and threatened to derail the 90-day truce offer to initiate negotiations related to the tariff war. However, officials from both countries have reportedly initiated trade talks to ease the tariff restrictions imposed on each other.
Meanwhile, volatility persisted in the U.S. equity markets in 2018, with the year being dubbed the worst in a decade in terms of stock-market performance. While the Dow fell 5.6%, the S&P 500 Index and the Nasdaq Composite declined 6.2% and 3.9%, respectively. The intense market volatility was due to a combination of several factors such as global economic slowdown, geopolitical concerns, monetary policy woes, inflation fears and uncertainties regarding increased regulation of the technology sector. As we move forward in 2019, the market awaits further clarity on policy matters and expects the trade war concerns to be addressed earnestly.
Regarding company-specific news, divestures, deployment of 5G services, technology collaborations and strategic corporate actions took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. Windstream Holdings, Inc. (WIN - Free Report) announced that it has monetized the legacy EarthLink consumer Internet business to reduce capital expenditure and focus on core operations. The business was sold for $330 million in cash to Trive Capital — a Dallas-based private equity firm.
The divested business offers Internet access, online back-up, managed web design, web hosting and various email services to more than 600,000 customers throughout the United States. Windstream had acquired this business when it merged with EarthLink in February 2017, in an all-stock deal valued at $1.1 billion. Although it benefited from EarthLink’s expanded national fiber footprint and enhanced products and services, the company presently considers it a non-core business. (Read more: Windstream Divests Non-Core Assets to Focus on Core Business)
2. In 2018, Verizon Communications Inc. (VZ - Free Report) unveiled the world’s first commercial 5G service — Verizon 5G Home — in parts of Houston, Indianapolis, Los Angeles and Sacramento to enable customers to experience the first taste of commercial 5G network. It intends to augment broadband Internet and introduce 5G mobility service across the country.
Over the years, the largest U.S. wireless carrier by subscribers, has spurred technological innovation and economic development, including introduction of mobile data and making the ecosystem more pervasive with 4G LTE. The company believes that what happened with 4G was small compared to the possibilities that 5G era holds. It is also looking to slash costs as it ramps up investment in next-generation 5G network, which is expected to fuel growth. (Read more: Verizon Poised on Healthy Wireless Business and 5G Boom)
3. Zayo Group Holdings, Inc. (ZAYO - Free Report) recently announced that it has been chosen by a global Software as a Service company for the latter’s data center colocation to meet rising demand. Per the agreement, Zayo will provide expanded colocation space in a Midwestern data center while enabling the customer to secure additional space and power in 2019. Notably, the solution is expected to double the customer’s data center footprint.
Zayo’s extensive network footprint, comprehensive product portfolio and ability to penetrate in different markets are laudable. The company has expanded its fiber networks in four European markets, including London, Paris, Dublin and Amsterdam to deliver fast, high-capacity fiber to key centers of technology and commerce. It also announced that Quantum Xchange has selected its services for a dark fiber solution to power the first Quantum Key Distribution network in the United States. The 530-mile route will extend from Boston to Washington DC, leveraging Zayo’s existing network along the eastern corridor. (Read more: Zayo Chosen by SaaS Firm for Data Center Colocation)
4. CenturyLink, Inc. (CTL - Free Report) welcomed the investigation by Wyoming regulators to find the cause of the Internet outage that affected the emergency 911 calls. The Federal Communications Commission and Washington state regulators have also decided to investigate the outage that affected customers from New York to California. Although the company has denied any hacking, it has not divulged any probable cause for the system failure.
The following table shows the price movement of some of the major telecom stocks over the past week and during the past six months.
In the past five trading days, AT&T Inc. (T - Free Report) was the biggest gainer, with its share price increasing 4.9%, while SBA Communications Corporation (SBAC - Free Report) was the only decliner with its stock losing 2.2%.
Over the past six months, Sprint Corporation (S - Free Report) has been the best performer with its stock appreciating 10.1%, while AT&T declined the most with its shares falling 10.7%.
Over the past six months, the Zacks Telecommunications Services industry has declined 1.7% while the S&P 500 fell 7.5%.
What’s Next in the Telecom Space?
In addition to continued product launches and deployment of 5G technologies, all eyes will remain glued to how the United States and China continue their negotiations for a long-term solution to the trade war.
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