Last week witnessed many significant developments in the telecom industry. On the net neutrality front, the Federal Communications Commission (FCC) finally proposed new laws which will classify high-speed broadband (Internet) under Title II of the 1934 Communications Act.
However, the proposed law does not include retail price control on broadband services. Net neutrality does not include rate regulation, tariff regulation and last-mile unbundling.In fact, ISPs (internet Service Provider) will enjoy the upper hand in levying charges on some specialized broadband services.
Meanwhile, Qualcomm Inc. (QCOM) settled antimonopoly charges with Chinese regulatory authority National Development and Reform Commission (NDRC). The company agreed to pay $975 million in fine and will also offer several royalty concessions for its licensing business in China.
In a separate development, DISH Network Corp. (DISH) commercially launched Sling TV, its first Internet TV venture. Further, in an attempt to lure customers from its closest rival DIRECTV, the company has offered a guaranteed savings of $250 per annum to all DIRECTV customers who are willing to switch over to DISH.
Additionally, Sprint Corp. (S) plans to open mini-shops in as many as1,750 of RadioShack's stores in order to revamp its telecom businesses.
Recap of the Week’s Most Important Stories
1. The FCC chairman Mr. Tom Wheeler proposed new net neutrality laws which will classify high-speed broadband (Internet) as a public utility under Title II of the 1934 Communications Act instead of section 706 of the 1996 Telecom Act. The reclassification will allow the government to strongly regulate ISPs. Notably, the five-member regulatory body will vote on this proposal on Feb-26.
In Nov 2014, President Obama strongly endorsed net neutrality to bring out a radical change in the way the government treats high-speed broadband service. Net neutrality implies an open-Internet atmosphere which will prohibit ISPs, especially the telecom and cable TV operators, from discriminating against contents and applications. (Read More: FCC Proposes Net Neutrality Laws with Title II Norms.)
2. Qualcomm has reached an agreement with Chinese regulatory authority, NDRC, settling the 15 month old antimonopoly charges against the company. As a settlement, Qualcomm will pay a fine of $975 million together with several royalty concessions to Chinese handset developers. Meanwhile, the company’s management also raised its financial outlook for fiscal 2015.
The Chinese wireless market is currently the major growth area for Qualcomm. Qualcomm generates 74% of its revenues from chipset sale but earns 58% of its profit before tax from high-margin licensing business which generates massive royalties.
In fiscal 2014, the company generated nearly 50% of its global revenues ($26.5 billion) in China, with a large chunk of profit coming from higher-margin royalties earned from the company's licensing business. (Read More: Qualcomm Settles Chinese Antitrust Charges, Ups Guidance.)
3. Recently, DISH commercially launched its Internet TV service called “Sling TV”. With this, the second largest satellite TV operator in the U.S. forayed into the over-the-top video delivery market. Availability of Internet TV at an exceptionally low price along with the accessibility to some top-rated TV channels such as ESPN of The Walt Disney Co. (DIS) may become a game changer for the pay-TV industry while posing significant threat to cable MSOs. Most importantly, the Sling TV service will be available for as low as $20 a month to view sports, lifestyle, family and news networks. (Read More: DISH Network Enters Internet TV Business with Sling TV.)
4. Recently, DISH launched a value-themed campaign targeting its closest rival DIRECTV customers. With the program, DISH assures $250 of savings per annum to all DIRECTV customers for the same programming and services they are presently availing if they choose to switch over to the former’s network.
Toward this end, DISH has set up a website, dishchallenge.com, where DIRECTV customers can register for the promotion, which runs through Apr 8. DISH believes that this strategy will help it to lure high-valued cost-conscious customers from DIRECTV. Over the last three years, DISH also made several technological advancements related to its video delivery. (Read More: DISH Eyes DIRECTV Users, Launches $250 Savings Plan.)
5. Sprint is set to open mini-shops in as many as 1,750 of RadioShack's stores. The expansion is part of Sprint’s plan to spur a turnaround and revamp its sinking business by adding more retail locations. Last week, RadioShack filed for Chapter 11 bankruptcy. The beleaguered electronic and mobile products retailer is looking to close the rest of its U.S. stores and is also in discussions to sell its remaining overseas assets.
Sprint has jumped at the opportunity. Per the deal, Sprint would effectively manage a small shop within a larger RadioShack store, taking up around one-third of the retail space at every location. (Read More: Sprint to Occupy Retail Space in Multiple RadioShack Stores.)
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 |
+4.21% |
+4.71% |
|
T |
-0.06% |
+2.50% |
|
S |
+9.83% |
-12.37% |
|
TMUS |
+1.66% |
+6.18% |
|
VOD |
-2.01% |
+9.92% |
|
CHL |
-2.33% |
+22.60% |
|
AMX |
-4.74% |
-11.93% |
|
CMCSA |
+1.55% |
+8.36% |
|
DISH |
-0.50% |
+21.08% |
Over the last five trading sessions, the share price movement of most of the major telecom stocks was mixed. Sprint gained maximum value whereas America Movil SAB (AMX) lost the most. Meanwhile, over the last six months, the price performance of key telecom stocks was predominantly positive. China Mobile Ltd. (CHL) and DISH gained a considerable 22.60% and 21.08% respectively. On the other hand, Sprint and America Movil lost 12.37% and 11.93% respectively, over the same time frame.
What’s Next in the Telecom Sector?
We expect the upcoming week to be eventful as well for this sector as several telecom and cable TV operators will release their earnings results. Large foreign telecom operators like Orange (ORAN), Telus Corp. (TU), Chunghwa Telecom Co. Ltd. (CHT) and leading European cable MSO Liberty Global Plc. (LBTYA) are scheduled to release their quarterly financial results.
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