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Telecom Stock Roundup: AT&T Unveils 5G Strategy, Frontier's Asset Sale & More

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In the past five trading days, telecom stocks mostly traded flat with a downward inclination owing to the continued market uncertainty triggered by a prolonged partial shutdown of the government. The downtrend was further caused by a draft executive order initiated by the Trump administration to restrain Chinese state-owned telecom firms from operating in the United States on national security concerns. The United States is reportedly mulling to seek extradition of Huawei CFO Meng Wanzhou from Canada before the Jan 30 deadline, to proceed with the legal charges. This probably added to the sector woes in the past week.

On the domestic front, the Trump administration is reeling under partial shutdown by various federal agencies for an all-time record of 33 days and counting. In addition to crippling the normal functioning of the government with furloughs and pay freeze, the impasse has led to unavailability of adequate funds for the speedy deployment of 5G technologies. The shutdown has even hampered FCC’s equipment authorization process, compounding industry fears that the deadlock could jeopardize the country’s edge in the upcoming 5G boom.

To make matters worse, the government is supposedly preparing an executive order that could give sweeping powers to the Commerce Department to review imported products by domestic firms and ban the outright sale of such equipment on grounds of national security interests. Industry observers feel that it could ultimately serve as a death-bell to some Chinese telecom firms and make it virtually impossible for them to operate in the U.S. shores if the bill is passed by the President.

Despite the conundrums, both the United States and China have continued with their trade negotiations to seek a long-term solution to the trade war. The bilateral trade talks between U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu is also scheduled later this month. However, the diplomatic ties continue to be under severe stress as reports emerge that the United States is considering to formally request the extradition of Meng from Canada to pursue a criminal case against her for alleged trade secret theft. Some industry experts believe that the strategic move could be a ploy by the Trump administration to seek a hard bargain from China. Although the warring countries have maintained that the issue would not deter the trade talks, there is no denying of the fact that tense undercurrents have prevailed over both sides.

Regarding company-specific news, strategic corporate actions, divestments, product launches and technology collaborations took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.    AT&T Inc. (T - Free Report) has yet again proved its unconventional ‘out-of-the-box’ thinking, which helped it evolve from a telecom firm to a leading player in the U.S. communications sector, with a public view of its 5G strategy. As the first carrier in the industry, the company recently unveiled its 5G policy framework that will hinge on three pillars — mobile 5G, fixed wireless and edge computing.

The company aims to address the diverse needs of the business through this holistic approach and better serve the surging consumer base. At the same time, AT&T is developing a robust network to enable fiber-based connectivity and LTE to work in unison with 5G solutions and services, thereby facilitating the radical transformation of business. (Read more: AT&T Unveils Industry's First Three-Pronged 5G Strategy)

2.    Frontier Communications Corporation (FTR - Free Report) has sold a portfolio of 100 wireless communication towers primarily in Connecticut, New York and California for $80 million. The assets were sold to Everest Infrastructure Partners — a Pittsburgh, PA-based investment firm specializing in infrastructure investments.

The divesture is part of the long-term strategy of the company to strengthen its balance sheet as it remains significantly challenged by slow economic recovery in its service territories. Moreover, Frontier seems to be grappling with the loss of legacy fixed telephony business to wireless and other offerings. The persistent decline in access lines continues to tighten local service revenues, which accounts for the bulk of Frontier’s total revenues. (Read more: Frontier Divests Communication Towers for $80 Million)

3.    Telefonica S.A. (TEF - Free Report) is reportedly considering divesting its non-core assets in Central America to reduce debt burden and focus on core businesses in other parts of the world. The relatively small business operations in the region include assets in Costa Rica, El Salvador, Guatemala, Nicaragua and Panama.

The continued asset sale transactions are aimed to increase liquidity and ease its burgeoning debt pile. Telefonica ended third-quarter 2018 with cash and cash equivalents of €6,138 million ($7,121.2 million) and non-current financial liabilities of €47,482 million ($55,087.9 million). In the first nine months of 2018, the company generated free cash flow of €2,957 million, down 8.3% year over year. (Read more: Telefonica Mulling Non-Core Asset Sale in Central America)

4.    Windstream Holdings, Inc.’s business segment — Windstream Enterprise & Wholesale — has announced that it will utilize the existing long-haul fiber assets to augment its core network by more than 200 miles in Montreal, Quebec.

Notably, this network expansion reinforces Windstream’s goal to connect people and empower enterprises with a world of infinite possibilities. The network communications and technology solutions provider will offer customers up to 100 Gbps Wavelength Services and 10 Gbps Internet and Ethernet services in Montreal. This would enable access to core U.S. routes interconnecting within the major New York City locations, data centers and cable landing stations in Wall Township, NJ and Ashburn, VA. (Read more: Windstream Unit to Augment Long-Haul Core Network in Canada)

5.    Nokia Corporation (NOK - Free Report) recently announced that it has been chosen by Telefónica, S.A. as Service Operation Center provider to transform its subsidiary Telefónica UK’s customer-oriented business approach.

Per the agreement, the Finnish wireless equipment maker will help Telefónica UK to steadily move from a traditional network-centric operator to a customer-centric one with extensive focus on subscriber experience across the United Kingdom. (Read more: Nokia's eSOC Chosen by Telefonica to Transform U.K. Unit)

Price Performance

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, Harris Corporation (HRS) was the biggest gainer with its share price increasing 3.9% while QUALCOMM Incorporated (QCOM) declined the most with its stock losing 6.8%.

Over the past six months, Sprint Corporation (S) has been the best performer with its stock appreciating 12.2% while Qualcomm declined the most with its shares falling 14.8%.

Over the past six months, the Zacks Telecommunications Services industry has inched up 3.4% while the S&P 500 fell 7.6%.

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 amid the backdrop of Meng’s extradition and criminal investigation process.

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