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Telecom Stock Roundup: AT&T Boosts Cloud Suite, May Enter Media Space, Comcast Faces FCC Spat

Zacks

Last week has been pretty eventful for the telecom industry. U.S. telecom behemoth AT&T Inc. T dominated the headlines. The company recently announced partnership plans with IBM Corp. IBM and Amazon Web Services Inc., a subsidiary of Amazon.com Inc. AMZN to strengthen its hybrid cloud and IT services business.

As per a recent report by Bloomberg, AT&T is looking to foray into the media and entertainment industry. Notably, the telecom giant intends to expand through the acquisition of a number of media and programming content producing companies over the next few years. Moreover, AT&T is moving ahead with plans to introduce its Enhanced Control, Orchestration, Management and Policy (ECOMP) virtualization platform in the open source industry in the first quarter of 2017.

Meanwhile, the largest cable multi service operator (MSO) Comcast Corp. CMCSA has agreed to pay $2.3 million to the Federal Communications Commission (FCC) as a settlement for its unlawful billing practices. Interestingly, this is the largest amount the FCC has ever levied as a penalty. Nevertheless, Comcast recently announced a new platform – machineQ – wherein the company is focused on building business-to-business solutions on the Internet of Things (IoT) platform.

According to a recent report by The Wall Street Journal, Sprint Corp. S is preparing to sale and leaseback a little over 10% of its total airwaves (wireless spectrum) holdings. Most of these spectrums will be from 2.5 GHz frequency bands and some will be from 1.9 GHz frequency bands. As per Sprint’s estimate, its portfolio of airwaves is valued at more than $14 billion. However, the company aims to raise around $3.5 billion by issuing investment grade bonds that will mortgage its spectrums of the above mentioned frequency bands.


According to a recent report by Cowen & Co., U.S. telecom giant Verizon Communications Inc. VZ is about to sign a deal with Eqinix Inc. EQIX to divest its data center business for a consideration of around $3.5 billion. In Jan 2016, Verizon confirmed that it is considering the sale of its data center portfolio. Furthermore, the company is proceeding with its drone application plans. Verizon aims to incorporate 4G LTE connections to drones and use its IoT platform, ThingSpace for airborne applications such as drone surveillance of industrial assets with the help of its Airborne LTE Operations (ALO) initiative.

In a separate development, Charter Communications Inc. CHTR, the second-largest cable MSO in the U.S., recently entered into a share warrant agreement with ARRIS International plc. ARRS. Notably, ARRIS is a leading customer premises equipment (CPE) manufacturer for the cable TV industry.

In addition, leading exchange carrier in the U.S., Windstream Holdings Inc. WIN is forging ahead with plans to strengthen its fixed wireless networks services by upgrading it with millimeter wave radio technology to reach out to almost 72 U.S. markets. Windstream currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Read the last Telecom Stock Roundup for Oct 06, 2016.

Recap of the Week’s Most Important Stories

1. AT&T declared that it is entering into an alliance with IBM to offer more cloud networking services to businesses and will ensure efficient operation of the networking services of the same. The company also announced a multi-year, strategic tie-up with Amazon Web Services to effectively use the outcome of integrated solutions based on Amazon’s cloud and networking capabilities. (read more: AT&T Ties Up with IBM & Amazon, Boosts Cloud Suite.)

2. As AT&T operates as a pay-TV operator as well, investing in media and content programming will allow it to achieve backward integrated synergies, mostly reduction of cost to deliver content to subscribers. However, such a move will not be easy as the company doesn’t have the required cash to expand a newly created media division. Thus, it has to raise more debt for foraying into the media space. However, with a net debt at the end of second quarter of 2016, piling up further debt may spook investors. (read more: Is AT&T Planning to Enter the Media & Entertainment Space?)

3. Many customers at Comcast were billed for services and equipment without their knowledge. Moreover, even after discovering the charges, the customers usually opted for the painfully slow process of getting a refund. Even customers who refused opting for any extra service or upgrade were charged for the unrequested services. This illegal practice is termed as ‘negative option billing’ in the industry where companies provide services and charge customers without the latter’s consent. (read more: Comcast Coughs Up $2.3M to Settle False Billing Charges.)

4. At the end of fiscal 2015 (ended Mar 31, 2016), Sprint had nearly $37 billion of total debt outstanding and a negative cash flow of $3.17 billion. The company needs to repay $4 billion of total debt by Mar 2017. Management aims to slash costs by more than $2 billion in fiscal 2016. In Nov 2015, the telecom carrier raised $1.2 billion by selling and leasing back handsets. In Apr 2016, Sprint used network assets as collateral to raise $2.2 billion. (read more: Is Sprint Preparing to Mortgage Airwaves to Raise Cash?)

5. Over the last couple of years, Verizon has been restructuring its business model and divesting non-core assets.The prospects of colocation business are not very exciting, and Verizon is thus looking for ways to avoid investing more capital in the segment. Over the years, many telecom operators have been actively purchasing data to counter the decline in revenues from their traditional telecom services. (read more: Is Verizon Planning to Divest Data Centers to Equinix?)

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

0.10%

-1.93%

T

0.15%

2.82%

S

2.42%

98.25%

TMUS

-0.50%

18.48%

VOD

-2.86%

-14.14%

CHL

-2.56%

7.59%

AMX

4.17%

-23.57%

CMCSA

-0.81%

5.31%

DISH

-0.36%

24.44%

Over the last five trading sessions, share price movement of major telecom stocks witnessed a mixed trend. America Movil (4.17%) gained significant value in the last five trading sessions. However, over the last six months, the price performance of most telecom stocks was predominantly positive. Among the stocks that gained considerably were Sprint (98.25%), DISH (24.44%) and T-Mobile US (18.48%). On the other hand, America Movil and Vodafone lost 23.57% and 14.14%, respectively, over the same time frame.

What’s Next in the Telecom Sector?

We do not foresee any significant changes in the telecom industry or overall global economic factors that can affect the industry in the coming week. Therefore, we expect stocks to trade in line with the broader market movement.

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