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Telecom Stock Roundup: T-Mobile's Nationwide 5G, Verizon 5G Edge Computing & More

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In the past five trading days, telecom stocks witnessed a downtrend on President Trump’s hint that there is no specific deadline for the ongoing “Phase One” deal between the United States and China. On cue, the market went on a tailspin, dragging the telecom sector down as uncertainty and unpredictability took centerstage. With China issuing strong protests for U.S. legislations supporting Hong Kong protesters that reportedly meddled in so-called ‘internal affairs’, the outlook for the partial trade accord appeared murkier. However, the stocks showed some signs of a rebound in the later stages of the week as media reports confirmed that the deal was around the corner.  

As the clock ticks on the imposition of a fresh round of U.S. tariffs on Dec 15 on $156 billion of imports from China, both sides are likely to seek an early resolution of the trade disputes on domestic compulsions. Although the optimism regarding the partial trade accord has been punctured with Trump hinting that the deal could spill off well in 2020, recent media reports have confirmed that the deal is to back on track.  

Meanwhile, the Trump administration is planning to utilize $60 billion funds earmarked for the U.S. International Development Finance Corporation (“DFC”) to thwart China-based telecom equipment manufacturers Huawei and ZTE. The move is the latest in a string of concerted efforts by the U.S. government to dissuade other sovereign countries from using Huawei and ZTE gear to preempt alleged spying and siphoning of data. The United States has extensively used its diplomatic channels in the past to urge its allies to shun Huawei from their 5G wireless networks, citing security threat and espionage by China’s government. The government now seeks to undertake a more proactive measure to fructify its ploy by possibly leveraging DFC tools to support purchases of non-Chinese telecom gear by issuing credit to Huawei’s European rivals. Industry grapevines further hint that DFC could also take minority equity stake in companies and offer loans, loan guarantees and political risk insurance.

Huawei has vehemently opposed the unilateral steps by the U.S. authorities and has filed a lawsuit against the ‘unconstitutional’ ruling to ban the use of federal subsidies by rural firms to buy its equipment, urging the court to overturn the order. The company is also reportedly mulling to shift its U.S. operations to Canada against constant vigilantism and stiff opposition.  

Regarding company-specific news, nationwide 5G launch, strategic collaboration, contract extension, and business update took the center stage over the past five trading days.

Recap of the Week’s Most Important Stories

1.      T-Mobile US, Inc. (TMUS - Free Report) has become the first telecom carrier to activate nationwide 5G network, covering nearly 200 million Americans in more than 5,000 cities and towns.

The only nationwide 5G network boasts an investment of $30 billion for network improvements, 25,000 new towers and cell sites with network coverage of 1 million square miles across the United States. Covering 60% of the U.S. population, T-Mobile’s 5G coverage utilizes longer range low-band 600 MHz spectrum, offsetting the shortcomings of millimeter wave networks like limited range and poor obstacle penetration. (Read more: T-Mobile Activates Nationwide 5G Network Coverage)
 
2.     Verizon Communications Inc. (VZ - Free Report) has teamed up with Amazon.com, Inc.’s cloud computing arm, Amazon Web Services (“AWS”), to create and deploy low latency applications to mobile devices using 5G and became the first telecom carrier in the world to offer such service.

The company will leverage AWS Wavelength to deploy consistent and flexible AWS experience across 5G edge compute facilities. The combined technology will enable AWS developers to deliver ultra-low latency applications such as live video streaming, machine learning inference at the edge, and augmented and virtual reality, leveraging Verizon’s 5G Ultra Wideband network. (Read more: Verizon Initiates Trial Run for Advanced 5G Solutions)

3.      Reinforcing the long-term partnership, Ericsson (ERIC - Free Report) has secured a three-year contract extension from French telecommunications firm, Orange, for the deployment of its AI operating model — Ericsson Operations Engine.

The high-end operating model is specifically designed to meet the burgeoning demands of increased network complexity by enabling service providers to reduce costs, drive network efficiency, boost productivity and pave the path for innovation as the industry migrates to 5G and IoT. It consists of an end-to-end data-driven process, which allows organizations to work seamlessly between different applications, thereby driving new levels of network performance, flexibility and scalability. (Read more: Ericsson & Orange Augment Automated Operational Services)

4.     Speaking at the recently held Wells Fargo Global TMT conference, AT&T Inc.’s (T - Free Report) chief financial officer, John Stephens, provided business update to shareholders, shedding more light on the three-year plan initially offered in October along with quarterly results.

The telecom and media giant projects consolidated revenues at a CAGR of 1-2% from 2020-2022, and EBITDA margins to grow 200 basis points by 2022. While revenue growth is expected mainly from wireless, WarnerMedia and Mexico, margin expansion is likely to come from wireless, merger synergies, Mexico, and cost-reduction initiatives. (Read more: AT&T's CFO Discusses 2020-2022 Targets With Stockholders)

5.     Nokia Corporation (NOK - Free Report) has reportedly submitted a proposal to the EU to amicably resolve the patent licensing disputes with leading European automobile manufacturers. The move could preempt a potential investigation by the European Commission and the consequent imposition of fine if Nokia was found to be at fault, probably preventing legal hassles and bad publicity associated with it.

With the draft proposal, Nokia has offered an olive branch to initiate constructive dialogue on the issue for a workable solution for the overall improvement of the automotive sector. Meanwhile, the European Commission has refused to comment on the industry grapevines. (Read more: Nokia Aims to Settle EU Patent Licensing Row With Daimler)

Price Performance

The following table shows the price movement of some of the major telecom stocks over the past week and six-month period.



In the past five trading days, AT&T has been the biggest gainer with its share price increasing 1.2%, while Juniper has been the biggest decliner with its stock down 4%.

Over the past six months, CenturyLink has been the best performer with its stock appreciating 26.5%, while Arista Networks has been the biggest decliner with its stock down 32.8%.

Over the past six months, the Zacks Telecommunications Services industry has recorded average growth of 3.9% and the S&P 500 has rallied 10.3%.



What’s Next in the Telecom Space?

In addition to product launches, strategic deals and 5G deployments, all eyes will remain glued to how the government handles the various issues relating to the “Phase One” deal.

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