Telecom Stock Roundup: Wireless Carriers Prepared for Election Conventions, Verizon Offers New Data Plan
Zacks Equity Research
Updated
It was an eventful last week for the telecom industry. With the U.S. Presidential conventions right around the corner, all the four leading wireless carriers of the U.S., namely, Verizon Communications Inc. VZ, AT&T Inc. T, T-Mobile US Inc. TMUS and Sprint Corp. S are gearing up for heavy traffic. The Republican National Convention will take place in Cleveland from Jul 18-21 and the Democratic National Convention in Philadelphia in Jul 25-28. The carriers have been working on upgrading their capacity for months now and have already boosted their network in these two cities.
U.S. telecom behemoth Verizon has increased its monthly data plan by up to $10/month, depending upon the size of the plan. The increase in rates is, however, accompanied by higher data caps for each and every plan. Interestingly, the rate hike will actually lower the cost per GB for consumers. Meanwhile, the company has achieved an important milestone becoming the first in the world to issue an initial radio specification for the upcoming 5G wireless network.
Among other news that made it to the headlines was the Polycom Inc. PLCM acquisition saga where Siris Capital Group, LLC seems to be emerging as the winner. Siris Capital is expected to take over the voice, content collaborator for $2.0 billion in cash.
AT&T is set to launch an all-in-one Internet of Things (IoT) Starter Kit in association with Cisco Systems, Inc. CSCO and Avnet Inc. AVT to help developers initiate their Internet of Things (IoT) projects.
The leading mobile chipset developer, Qualcomm Inc. QCOM has launched its latest flagship smartphone System on Chip (SoC) – the Qualcomm Snapdragon 821 – to power next-generation smartphones. The company hopes to deliver better performance with this chipset compared to its predecessor, Snapdragon 820.
On the legal front, Univision Communications Inc. -- the largest TV broadcaster of the Spanish language in the U.S. -- has sued the newly merged Charter Communications Inc. CHTR over carriage licensing fees. In a separate development, Chinese telecommunication equipment company Huawei Technologies Co. has filed a lawsuit against T-Mobile US over the latter’s use of Huawei’s intellectual property covering 4G technology without license.
Frontier Communications Corp. FTR may have to undergo an investigation by three State and Federal agencies -- the California Public Utilities Commission, the state's Office of Emergency Management and Federal Communications Commission. This is in relation to a recent service outage of the 911 system in Coachella Valley, CA. Frontier Communications is in charge of the 911 emergency system in the region.
Outside the U.S., Telmex, the fixed-line telephone subsidiary of the Mexican telecom giant America Movil SAB AMX, has decided to gradually lower its rates for calls from land lines to mobile phones by about half by 2018. Liberty Global plc LBTYA has entered into an agreement with ITV plc to acquire UTV Ireland TV stations from the latter through its subsidiary Virgin Media. Finally, Telefonica SA TEF sold an additional 1.5% stake in China Unicom Hong Kong Ltd. for approximately $364 million to raise cash and pay off debt.
Read the last Telecom Stock Roundup for Jul 07, 2016.
Recap of the Week’s Most Important Stories
1. As the U.S. prepares for the Presidential Race conventions, the wireless carriers will look for increased revenues from data usage. Moreover, this is a major opportunity for the carriers to exhibit their capacity to handle network traffic efficiently which can act as a catalyst to attract more subscribers and business customers (read more: Wireless Carriers Boosting Capacity for Election Conventions).
2. Verizon had a starter pack comprising 1 GB of data for $30 per month, along with unlimited calls and text. After the recent rate hike, this plan will provide a 2 GB data limit for $35 per month. Similar updates were made for Verizon’s other plans too. Additionally, the carrier will now allow carry-over of data to the next month. This is expected to hold popular appeal in today’s data-driven world. The company is also introducing some plans that will allow Verizon customers to make unlimited calls and send unlimited texts to Mexico and Canada (read more: Verizon Hikes Monthly Data Plan, Increases Data Limit).
3. Pay TV operators are trying to reduce cost, which has been shooting of late. In a market where they are now being challenged by online video streaming provides, rising operational costs are an undesirable trend. Since Time Warner Cable (currently acquired by Charter Communications) had a deal with Univision at a lower cost, it is of no surprise that Charter Communications intends to continue the running agreement which would help reduce some of its programming expenses (read more: Univision Suit Against Charter Over Carriage Licensing Fees).
4. Huawei said that it had offered T-Mobile US to license its patents in 2014, but the two parties had a disagreement over the fair valuation of the same. Interestingly, Huawei is not looking for a monetary settlement. Instead, the company simply wants the court to declare that it has met the fair, reasonable and non-discriminatory (FRAND) terms so that it can force T-Mobile US into resuming licensing negotiations (read more: T-Mobile US Sued by Huawei Technologies over 4G Patents).
5. Siris Capital will acquire Polycom’s shares for $12.50 per share if the deal is approved. The $2 billion also includes Polycom’s outstanding debt and boasts a 13.6% premium to Mitel’s offer as per Polycom’s share price on Jul 7. Notably, the Siris Capital proposal will remain in effect till Jul 15, 2016. The deal is subject to Polycom accepting the offer in addition to shareholder, regulatory approval and other customary closing conditions (read more: Polycom: Is a Buyout by Siris Capital in the Cards?).
Price Performance
The following table shows the price movement of the major telecom players over the past week and the last six months.
Company
Last Week
Last 6 Months
VZ
-0.46%
26.84%
T
-1.18%
26.23%
S
9.89%
57.74%
TMUS
2.46%
13.80%
VOD
2.79%
-2.89%
CHL
5.40%
14.80%
AMX
2.32%
-3.06%
CMCSA
2.66%
24.80%
DISH
2.34%
0.88%
Over the last five trading sessions, share price movement of most of the major telecom stocks was positive. Sprint (9.89%) and China Mobile (5.40%) were the major gainers. Similarly, over the last six months, the price performance of most of the key telecom stocks was positive. Among the stocks that gained significantly were Sprint (57.74%), Verizon (26.84%), AT&T (26.23%), Comcast (24.80%) and China Mobile (14.80%).
What’s Next in the Telecom Sector?
We do not expect any significant change in the telecom industry or in the overall global economic factors that might affect the industry in the coming week. With the major telecom operators yet to release their second-quarter 2016 financial results, we expect stocks to trade in line with the broader market movement at least in the near term.
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