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Telecom Stock Roundup: T-Mobile-Sprint Merger in the Cards?

Zacks

Over the last five trading days, telecom stocks witnessed a roller-coaster ride as skepticism from fears of a murky trade war was replaced by euphoria surrounding a possible merger that could redefine the dynamics of the industry.

The industry also witnessed one of the biggest IT projects ever undertaken in the country as commercial number portability services began in the Southeast with the remaining six regions joining the transition phase in the coming weeks. This involved moving 500 million phone numbers and more than 1 million transactions per day across 1,500 service providers from previous vendor Neustar to new vendor iconectiv, an U.S. subsidiary of Swedish telecommunications firm, Ericsson.

Continuous deployment of dynamic and programmable optical network, which can support virtualization and cloud technologies associated with 5G technology gained momentum last week. In order to facilitate thorough research and testing of some big promises of 5G, including applications like VR/AR and autonomous vehicles, the National Science Foundation deployed two Platforms for Advanced Wireless Research (PAWR).

The two PAWR test beds at Salt Lake City, UT, and New York City will further provide hands-on practical training, offering job opportunities to potential employees and supporting overall U.S. economic vitality. This would help revolutionize the wireless ecosystem to maintain its leadership in the sector against its Chinese counterparts.

Regarding company-specific news related to telecom, improved product launches for superior connectivity and high-quality content to subscribers at lower cost of ownership, technology collaborations and acquisition-related discussions ruled the roost over the last five trading days.

Recap of the Week’s Most Important Stories

1. Augmenting its market position as a pioneer in the advertising business, Altice USA, Inc. ATUS launched a4 — an advanced advertising tool — to provide audience-based, multiscreen advertising solutions for its clients.

With a4, Altice has brought to the fore unique skill sets for advertisers to identify the target audience across various media outlets. They can then create an effective media plan, execute the buy and measure cross-screen reach, frequency and attribution to measure the efficacy of the program. (Read more: Altice Launches a4 for Simplified Multiscreen Advertising)

2. In order to improve broadband coverage at every nook and corner of a house, TELUS Corporation TU launched an indigenously built Wi-Fi router named Boost Wi-Fi. The new product aims at eliminating any dead zone for seamless Internet connectivity, irrespective of where the device is placed.

To overcome common household hindrances like concrete, in-wall piping, appliances and mirrors that typically weakens the signal, Boost Wi-Fi will use a network of a maximum of five ‘boosters’ per household. These ‘boosters’ will seek to create additional hotspots to augment the signal where it is relatively weak, eliminating any location constraints for customers. (Read more: TELUS Launches Boost Wi-Fi to Improve Home Coverage)

3. Viasat, Inc. VSAT annulled its deal with Eutelsat Communications relating to the use of the ViaSat-3 satellite as the latter has decided to pursue a local market alternative. The Viasat and Eutelsat joint venture, which is operational for more than a year, will continue to be governed under the existing agreements. The company remains committed about its ViaSat-3 program for Europe, Middle East and Africa (EMEA), which is well underway and on track.

Once launched, the ViaSat-3 is expected to be the world’s highest capacity communications satellite system. The company believes that there is a significant interest in the ViaSat-3 program from prospective regional partners. (Read more: Viasat Reaffirms ViaSat-3 Commitment Despite Eutelsat Rebuff)

4. According to a Bloomberg report, airborne broadband system of wireless services provider, Nokia Corporation NOK is likely to be acquired by technology behemoth Alphabet Inc. Although both the company spokespersons have refused to comment on the issue or divulge any details, multiple sources have confirmed that negotiations are currently at a nascent stage.

Nokia offers air-to-ground connectivity network with Internet speed comparable to that provided by its rivals like Gogo Inc. By acquiring Nokia’s in-flight technology, Alphabet is likely to drive more customers to a faster alternative to facilitate the use of its other entertainment products like YouTube or Play Music.

By divesting in-flight Internet technology, Nokia is likely to focus more on its 5G telecom equipment business. (Read more: Nokia's In-Flight Wi-Fi Technology to be Acquired by Google)

5. Per Reuters, Sprint Corporation S has resumed talks to merge with T-Mobile US, Inc. TMUS, marking the latest effort to bring the United States’ fourth and third largest wireless carriers together. Their previous round of negotiations ended in November 2017, over valuation disagreements.

Upon successful completion of the deal, the combined company would have more than 127 million customers and might create more formidable competition for Verizon Communications Inc. VZ and AT&T Inc. T, the number one and number two players in the wireless industry respectively, amid a race to expand 5G offerings.

Sprint is struggling with a long-term debt of more than $32 billion. The company’s majority owner, SoftBank Group Corp, a Japanese conglomerate holding company, is looking to trim the debt, which reached $147 billion at the end of December 2017. It is also planning to raise cash by taking its Japanese mobile phone unit public this year. Sprint and T-Mobile decided to resume talks partly because they want to share the financial burden of investing in their networks. The negotiations are, however, at an early stage. (Read more: Sprint Gains on Renewed Talks With T-Mobile & iPhone Offer)

Price Performance

The following table shows the price movement of some the major telecom stocks over the past week and during the last six months.

In the last five trading days, Sprint was the major gainer with its share price rising 15.7% while SBA Communications Corporation SBAC was the major loser, with its stock declining 3.6%.


Over the past six months, Motorola Solutions, Inc. MSI was the best performer with its stock appreciating 16.4%, while Sprint was the major decliner with shares falling 18.7%.

Over the past six months, the Telecommunications Services industry underperformed the benchmark S&P 500 index with an average loss of 2.1% against a gain of 3.6% for the latter.



What’s Next in the Telecom Space?

In addition to continued product launches and deployment of 5G technologies, all eyes will remain glued to the developments related to the proposed merger of Sprint and T-Mobile. The earnings season of the sector will kick start with ADTRAN, Inc. ADTN, reporting results on Apr 17.

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