Telecom Stock Roundup: FCC Opens Incentive Auction, International Markets Witness Several Developments
Zacks Equity Research
Updated
The telecom sector was replete with significant developments last week. In the U.S., the Federal Communications Commission (FCC) kicked off the 600 MHz low-band airwaves auction, popularly known as Incentive Auction, on Mar 29, 2016. It may however take several months for the FCC to release the final outcome of this auction. The FCC revealed that the Incentive Auction has received applications from as many as 104 companies.
Meanwhile, Comcast Corp. CMCSA entered into a content licensing agreement with The Walt Disney Co.’s DIS studio Entertainment unit, Walt Disney Studios. This will allow Comcast’s Xfinity subscribers to purchase popular Disney movies from Xfinity’s On-Demand digital stores. So far, Comcast’s subscribers could only rent Disney movies. This latest arrangement will now allow them to own a digital version of the movie and store them in the cloud.
Moreover, Atairos Management – a private investment firm backed by Comcast, has invested $250 million in online dealmaker Groupon Inc. Comcast looks to benefit from Groupon’s recognized leadership in linking customers with local businesses, by combining it with its extensive subscriber and advertiser network.
On the other hand, national telecom carrier Sprint Corp. S has come up with a new promotional plan in collaboration with Amazon.com Inc. AMZN, offering Amazon Prime as an add-on to customers. Sprint customers will be required to pay an extra $10.99 to access Amazon's video and music libraries, e-books and avail two-day shipping at no additional cost, among other services.
Further, Frontier Communications Corp. FTR has completed the purchase of Verizon Communication Inc.’s VZ wireline assets in California, Florida and Texas.In Jul 2015, Frontier Communications had revealed that its planned acquisition of Verizon’s wireline assets will help it ensure rapid transition without any service interruptions to its customers. Half of the network runs on high-quality fiber-to-the-home technology. Frontier Communications will be able to use them as part of its service expansion drive and leverage the same to provide off-net capabilities to its customers.
Several important developments also took place in the international telecom space last week. Per a recent report by El Financiero, Mexico’s telecom regulatory authority -- Federal Telecommunications Institute (IFT) – will assess this month whether to maintain or eliminate asymmetric measures under current conditions of competition that the regulator had initiated two years back, in order to reform the country’s telecommunications sector.
Notably, the IFT recently approved a series of general guidelines for the creation of a secondary spectrum market in the country. The IFT wants the available spectrums to be used gradually rather than stay idle.
Rogers Communications Inc. RCI has become the first wireless operator in Canada to offer 'Internet of Things' (IoT) as a service to business enterprises. End-to-End Incident Management, Farm & Food Monitoring and Level Monitoring are the three IoT services that the wireless carrier is currently offering to its customers. In the meantime,Shaw Communications Inc. SJR has completed the divestiture of its wholly owned broadcasting subsidiary Shaw Media Inc. to Corus Entertainment Inc.
Spanish telecom behemoth Telefonica SA TEF and Swedish telecom infrastructure vendor giant Ericsson AB ERIC recently conducted a joint trial run of the LTE-U (Long-Term Evolution-Unlicensed) technology on a live network of the former. The trial run used Ericsson's RBS 6402 indoor picocell that offers 10 frequency bands, carrier aggregation methodology that provides throughputs of up to 300 Mbps, and supports LTE, WCDMA and WiFi standards.
Read the last Telecom Stock Roundup for Mar 31, 2016.
Recap of the Week’s Most Important Stories
1. In Jan 2016, FCC chairman Tom Wheeler expressed confidence that the Incentive Auction is slated to be the “world's largest spectrum auction that has ever taken place.” Low-band spectrum is crucial for wireless operators as the signals can be transmitted over longer distances and through brick-and-mortar walls in cities. These airwaves are being freed by TV broadcasters who no longer have any productive use of the same. These spectrums will instead be utilized by wireless operators to expand and strengthen their 4G LTE networks as well as for the upcoming 5G wireless standard. (Read more: FCC Opens 600-MHz Low-Band Wireless Spectrum Auction)
2. In 2014, the government of Mexico introduced major reforms within its telecommunications sector. The IFT identified America Movil and Grupo Televisa as the dominant players in the telecom and broadcasting sectors, respectively. America Movil’s wireline division, Telmex, currently controls around 70% of the Mexican market, whereas its wireless division, Telcel, holds about a 68% market share. Televisa, on the other hand, accounts for nearly 70% of TV broadcasting market share. (Read more: Mexico to Review Telecom Market Concentration Measures)
3. Rogers Communications continues to roll out 700 MHz LTE ‘lower block’ spectrum which provides better in-building penetration and rural LTE coverage. At present, the spectrum coverage stands at 71% of Canada's population. IoT needs superfast wireless links to run effectively. Wireless networks will provide the primary impetus to the telecom industry. In this regard, IoT holds potential to emerge as the numero uno factor for future growth in the space. (Read more: Rogers Communications Starts Internet of Things in Canada)
4. Comcast is a leading cable TV operator in the U.S. However, recent trends clearly show a significant shift in consumer preference to on-demand Internet content over costly TV packages. This has intensified competition. Internet TV providers are constantly vying for a larger share of the market. This transition has exerted considerable pressure on pay-TV operator’s top line. To counter this, Comcast has been striving to make its cable TV services more innovative by adding features like on-demand movies and other attractive content. (Read more: Comcast Xfinity Digital Stores to Offer Walt Disney Content)
5. Sprint believes that its Amazon Prime plan’s increased flexibility and convenience is sure to attract customers. The carrier is offering Prime on a monthly basis, instead of locking customers into a full year contract. Sprint, thus, is of the view that subscribers will not grudge paying more to avoid getting tied up in a long-term obligation.Sprint has been losing customers lately and has been trying all means to check churn to keep up with its competitors in the industry. In this regard, the company has been continually making efforts to lure customers from rival carriers by offering attractive promotional plans. (Read more: Sprint Offers Access to Amazon Prime for $10.99 a Month)
Price Performance
The following table shows the price movement of major telecom players over the past week and the last six months.
Company
Last Week
Last 6 Months
VZ
0.75%
25.87%
T
-0.64%
20.79%
S
4.06%
-18.96%
TMUS
1.72%
-3.81%
VOD
-2.37%
-1.63%
CHL
0.53%
-8.50%
AMX
-2.12%
-12.78%
CMCSA
2.76%
6.42%
DISH
-5.45%
-24.79%
Over the last five trading sessions, share price movement of the major telecom stocks showed a mixed trend. Sprint gained the most (4.06%) while DISH lost maximum value (5.45%) in the same time frame. On the other hand, over the last six months, the price performance of most of the key telecom stocks has been negative. Among stocks that lost the most over the period were DISH Network (24.79%), Sprint (18.96%) and America Movil (12.78%). Meanwhile, Verizon (25.87%) and AT&T (20.79%) gained substantially over the six-month tenure.
What’s Next in the Telecom Sector?
The focus is likely to remain on the FCC’s pending decision regarding cable MSO Charter Communications Inc.’s proposed $55.8 billion takeover bid of Time Warner Cable Inc. The deal was formulated in May 2015. Charter Communications is also set to acquire Bright House LLC for $10.4 billion.
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