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Telecom Stock Roundup: FCC Postpones BDS & Set-Top Box Reforms, Net Neutrality in Danger

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The startling win of Republican Donald Trump as the U.S. president is starting to show its impact on telecom policy parameters. Recently, Trump confirmed the appointment of Jeff Eisenach and Mark Jamison as advisors of the U.S. telecom regulator Federal Communications Commission (FCC). This might jeopardize net neutrality as both the officials of them are staunch opponents of the norm. Trump himself is a stern critic of net neutrality.

There is little doubt that the ISP (Internet Service Provider) industry will gain the most if the net neutrality laws are scrapped fully or partially by the FCC. Leading ISPs including AT&T Inc. T, Verizon Communications Inc. VZ, Comcast Corp. CMCSA and Charter Communications Inc. CHTR have decided to challenge the net neutrality laws in Supreme Court.

Notably, the current FCC chairman Tom Wheeler’s term will come to an end this month. Trump will take charge of White House on Jan 20, 2017 and will select a new FCC head. Last week, the FCC abandoned its plans to reform the Business Data Services (BDS) market and decided not to proceed with its set top box reform proposals. The FCC was persuaded to take these decisions after a group of Republican lawmakers asked Wheeler to refrain from acting on "controversial" issues during his final months in office.

According to a recent Reuters report, U.S. telecom behemoth Verizon received regulatory clearance from the FCC for the $1.8 billion deal to purchase XO Communications Inc.’s fiber-optic network. Notably, the FCC had allowed Verizon to enter a lease to use XO Communications’ wireless spectrum licenses for 5G deployment.


Furthermore, Verizonis planning to start selling its upcoming ‘IoT Fast Track’ services to small business owners.The service will offer technical, supplier-related and expense details to small and mid-sized companies for the IoT (Internet of Things) installations. Moreover, customers will not have to purchase Verizon’s network services to avail its IoT offerings.

Meanwhile, leading cable MSO (multi service operator) Comcast is foraying into the lucrative digital media market to drive growth. Recently, NBC Universal, a subsidiary of Comcast invested $200 million in online social news site BuzzFeed. Notably, Comcast had put in $200 million in BuzzFeed last month.

In a separate development, Comcast and satellite TV operator DISH Network Corp. DISH jointly announced that the latter’s virtual MPVD (Multichannel Video Programming Distributor) platform, Sling TV, will be integrated into the cable MSO’s cloud-based, managed video delivery platform, X1.

Leading wireless chipset manufacturer Qualcomm Inc. QCOM is set to launch a new version of the Snapdragon mobile processor. Recently, Qualcomm’s subsidiary, Qualcomm Technologies, Inc. (QTI), and Samsung Electronics Co., Ltd. entered into a strategic alliance to manufacture a premium Snapdragon processor, Qualcomm Snapdragon 835, using the latter’s 10-nanometer (nm) FinFET process technology.

Outside the U.S., Mexican telecom regulator — Federal Telecommunications Institute (IFT) — recently reaffirmed that the conversion of analog TV signals to digital signals across the nation, will be completed by the end of this year. The process will come to a conclusive end when a total of 460 low-power TV stations will switch off their analog signal.

The Mexican wireless market is currently controlled by America Movil SAB AMX, AT&T and Telefonica SA TEF. All three stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Read the last Telecom Stock Roundup for Nov 17, 2016.

Recap of the Week’s Most Important Stories

1. The BDS market, where telecom and cable MSOs provide a host of different network related services to business entities of different sizes, have been a lucrative source of revenues in the recent years for the service providers. More significantly, these service providers have been generating handsome revenues from the small and medium businesses by often charging steep price. At present, BDS is a $45 billion market opportunity per annum (read more: FCC Abandons Plans for BDS Reforms, Delays Voting Process).

2. Per the FCC, the set-top box market is primarily dominated by pay-TV operators and is currently valued at about $20 billion annually. Meanwhile, lack of competition has resulted in higher rental fees for consumers. At present, an average consumer spends around $231 per annum to lease set-top boxes. According to a recent study by the FCC, the cost of cable set-top boxes has risen 185% while the price of computers, televisions and mobile phones has dropped 90% since 1994 (read more: FCC's Set-Top Box Reform Postponed After Trump Victory).

3. Net neutrality implies an open-Internet atmosphere which will prohibit ISPs (Internet Service Providers), especially the telecom and cable TV operators, from discriminating against applications. In order to control the flow of bandwidth-consuming applications such as video streaming, the ISPs have been discriminating against several web-based contents and applications. Content developers have to pay heavy sums to ISPs for accelerated data transfer (read more: Trump's FCC Appointments Cast Doubts Over Net Neutrality).

4. XO Communications operates as a fiber-based IP and Ethernet network consisting of 20,000 route mile intercity network in the U.S. and Canada. Verizon has a nationwide wireless network for 4G LTE and plans to launch the faster 5G technology in 2017. The XO Communications acquisition will help the company offer cable TV and Internet services with 5G connection, at 20–50 times higher speeds of 2–5 gigabits per second (read more: Verizon Gains FCC Approval for XO Communications Buyout).

5. Verizon clearly stated that its $15,000 IoT Fast Track services are specifically designed for small business owners instead of larger multinational companies such as auto makers who usually opt for cellular-based IoT offerings. The main motive behind this latest offering is to expand the company’s addressable market for IoT services.The service will essentially connect small business owners interested in IoT ventures with Verizon consultants (read more: Verizon to Offer IoT Services to Small Businesses).

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

4.46%

1.31%

T

4.68%

0.60%

S

-0.13%

119.09%

TMUS

2.99%

29.78%

VOD

-4.27%

-11.08%

CHL

-1.03%

-2.32%

AMX

-0.84%

-6.45%

CMCSA

2.36%

10.44%

DISH

1/24%

19.23%

Over the last five trading sessions, share price movement of major telecom stocks witnessed a mixed trend. While AT&T (4.68%) and Verizon (4.46%) gained significant value, Vodafone (4.27%) lost the most over the same time frame. However, over the last six months, the price performance of most telecom stocks was predominantly positive. Among the stocks that gained considerably were Sprint (119.09%), T-Mobile US (29.78%), DISH (19.23%) and Comcast (10.44%).

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. Consequently, we expect stocks to trade in line with the broader market movement.

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