In the past five trading days, telecom stocks mirrored the broader equity indices and exhibited a roller-coaster ride. The stocks initially trended down as the coronavirus pandemic continued to be a spoilsport, recovering remarkably as the market factored in the possibility of an interest rate cut by the Fed. However, an untimely mid-week Fed decision to slash the benchmark interest rate by half a percentage point to the range of 1-1.25% triggered a broad-based sell off, and the telecom stocks were not immune to it.
The death toll in the United States has swelled to double figures. This has disrupted normal business operations and supply-chain mechanisms of various companies as they preferred to exercise caution and put on hold their delivery schedules to and from China and other countries like South Korea until the health risks are neutralized. This, in turn, has triggered insecurity within the industry, inducing a downtrend. With 159 positive cases confirmed in the United States to date, the markets remained apprehensive about possible repercussions.
The markets had a brief reprieve and surged in anticipation of an integrated effort by the world’s largest economies to stem the rout. However, an unscheduled emergency rate cut reignited the worst possible fears of recession being just around the corner. This feeling of uncertainty prompted panic selling across the board and led to a slide in all the leading benchmark indices with investors parking their money in the safe haven of government debt.
Meanwhile, the Senate has unanimously passed the Secure and Trusted Communications Networks Act of 2019. The bill, which includes $1 billion in funding to help smaller rural telecoms to “rip and replace” existing equipment from manufacturers like Huawei, which are deemed to be a threat to national security interests, has now moved to President Trump for his approval. This has offered European telecommunications equipment manufacturers like Nokia and Ericsson an opportunity to fill the void and executives of both the firms reportedly made a solid presentation to reassure U.S. lawmakers that their 5G gear is safe and secure for nationwide deployment.
Regarding company-specific news, launch of live TV service, spectrum sharing solution, amended merger agreement, IoT Expansion and contract primarily took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. After a successful pilot survey in 13 markets, AT&T Inc. T has launched a new live TV service across the country, aiming to reverse the trend of video subscriber loss in its pay-TV bouquet. Dubbed AT&T TV, the product will aid the company to play catch-up with avant-garde media firms like Netflix, Inc. and The Walt Disney Company to secure a bigger pie of the streaming service market.
Powered by Android TV set-top box, this broadband-delivered service offers a plethora of live TV channels, 500 hours of DVR storage space and 40,000 on-demand titles that can be streamed on a mobile device anywhere in the country. This is likely to enable users to either stream their favorite content on-the-go or record innumerable shows to watch later. (Read more: Can Nationwide AT&T TV Launch Reverse Video Subscriber Loss?)
2. Ericsson ERIC recently revealed that its spectrum sharing solution is currently available to communication service providers so that they can launch nationwide 5G in a cost-effective way. Within the next 12 months, more than 80% of Ericsson-powered commercial 5G networks will likely use this solution to achieve broad 5G coverage.
The Swedish telecom gear maker’s spectrum sharing enables both 4G and 5G to be deployed in the same band and on the same radio through a software upgrade. Ericsson believes that its dynamic solution is the most economically feasible way to deploy 5G on existing bands. Ericsson Spectrum Sharing software can run on any of its five million 5G-ready radios delivered since 2015. (Read more: Ericsson Brings Spectrum Sharing Solution to Expand 5G World)
3. In the wake of an unsolicited bid, Cincinnati Bell Inc. CBB has inked an amended merger agreement with its original suitor. The revised deal with Brookfield Infrastructure Partners L.P. stands at a valuation of $2.75 billion, which was previously settled at $2.6 billion.
Per the revised terms, Cincinnati Bell’s shareholders will be entitled to receive $12.50 in cash for each outstanding share compared with previous cash consideration of $10.50 per share. This amended transaction price is a whopping 62% above the initial closing price of $7.72 on Dec 20. Markedly, the revised agreement was followed by Cincinnati Bell’s non-binding proposal to get acquired by an anonymous infrastructure fund for a cash consideration of $12 per outstanding share. (Read more: Cincinnati Bell Inks $2.75B Revised Contract With Brookfield)
4. Sprint Corp. S has teamed up with Swisscom and Telia Company in a bid to expand its Curiosity IoT platform to Europe. The Overland Park, KS-based firm’s solution has been designed to optimize the burgeoning global IoT environment by bringing the network to the data.
Sprint Curiosity’s virtualized and distributed core network, combined with an operating system purpose-built for IoT, is helping to create ideal conditions to deliver high bandwidth, low latency performance and high availability of critical data. Already in the United States and Australia, the solution allows customers to reduce roundtrip time and improve performance of their IoT applications by keeping traffic local. (Read more: Sprint Expands IoT Platform to Europe With Swisscom & Telia)
5. Viasat Inc. VSAT has inked an agreement with Japan Airlines to deploy its Aerodocs document management system to support the airline's safety and compliance objectives. The comprehensive product offering is likely to transform the information management strategy of the airline firm and enable it to take more informed, data-driven decisions.
Aerodocs is an aviation-grade document management solution that combines the three key aspects in the document process – editing, distribution and viewing – into a seamless system. It is fast becoming the world’s leading intelligent information platform for aviation with complete control over document management, while offering critical flight reference handbooks, maintenance manuals and operational manuals. (Read more: Viasat Offers Document Management System to Japan Airlines)
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 best performer with its stock up 2.8%, while CenturyLink has been the biggest decliner with its stock down 1%.
Over the past six months, T-Mobile has been the best performer with its stock appreciating 15.6%, while Arista was the biggest decliner with its stock down 16.9%.
Over the past six months, the Zacks Telecommunications Services industry has recorded average loss of 1.7%, while the S&P 500 has rallied 0.9%.
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 administration tackles the coronavirus scare and attempts to mitigate its overall impact on the industry.
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