Last week has been pretty eventful for the telecom industry. The Federal Communications Commission (FCC) has decided to vote on the proposed net neutrality rules on Feb-26. The proposed regulations can drastically alter the entire business model of the Internet Service Provider (ISP) industry.
Moreover, the growing popularity of Internet TV is posing serious threat to legacy pay-TV (cable TV and satellite TV) industry as the availability of a cheaper source of TV viewing may significantly jeopardize their revenues.
Meanwhile, Bloomberg reports revealed the possibility of a takeover of AOL Inc. (AOL) by Verizon Communications Inc. (VZ) or a joint venture between the two entities. However, Verizon has invalidated the rumor. On the other hand, Qualcomm Inc. (QCOM) is facing severe challenges related to its technology licensing and royalty business in China.
Recap of the Week’s Most Important Stories
1. The FCC has announced its plans to vote on the much-debated rules concerning net neutrality in Feb 2015. Early next month, the FCC chairman Mr. Tom Wheeler will submit new rules in this regard on which the five-member regulatory body will likely to vote on Feb- 26.
Net neutrality implies an open-Internet atmosphere which will prohibit ISPs, especially the telecom and cable TV operators, from discriminating against applications. As of now, these companies can restrict any device, application, service, or content from running on their respective networks. (Read More: FCC to Vote on Net Neutrality in February.)
2. Recently, DISH Network Corp. (DISH) has unveiled its Internet TV service called “Sling TV” at the International Consumer Electronics Show. Availability of Internet TV at an exceptionally low price of $20 per month 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.
The Sling TV launch is not entirely new to the industry as Sony Corp. (SNE) has already launched the beta version of its Internet TV called “Playstation Vue”. Moreover, Verizon has been focusing on strengthening its Internet TV and online content delivery business while AT&T Inc. (T) has entered into a partnership with Chernin Group to offer such services. (Read More: Internet TV Gains Traction – A Threat to Cable MSOs?)
3. Bloomberg reported that the U.S. telecom behemoth Verizon is considering to takeover AOL Inc., a leading Internet and web-services provider. The company may even enter a joint venture with the latter. The negotiation process is currently at very early stage and neither of the companies has confirmed the news.
Acquisition of AOL or forming a joint venture will not only expand Verizon’s mobile-video offerings, but will also provide an access to AOL’s state-of-the-art advertising technology which enables automated buying and selling of ads online. (Read More: Is Verizon Mulling AOL Takeover or Joint Venture?)
4. All is not well for Qualcomm, the largest manufacturer of wireless chipsets globally, as the company may have to settle for lower royalty payment for its technology licensing in China. In Nov 2013, the Chinese regulatory authority, National Development and Reform Commission (NDRC), had initiated a probe into the company’s monopolistic practices in that country.
Following that, the NDRC determined that Qualcomm is exercising monopolistic power in the country. Recently, the regulator stated that it is trying to wrap up the case as soon as possible. (Read More: China Licensing Norms to Hit Qualcomm's Royalty Business.)
5. Wireless service provider United States Cellular Corp. (USM) has announced that Samsung's latest smartphone, the Galaxy Note Edge, will now be available with the carrier effective Jan 7, 2015. Notably, this is Samsung's first smartphone with a curved Edge display and will be offered by U.S. Cellular, both online and in stores. All qualified customers will be able to include it in their Shared Connect plan and obtain it for zero upfront payment using U.S. Cellular's equipment installment option. (Read More: US Cellular to Offer Samsung Galaxy Note Edge.)
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 |
– 1.26% |
-3.99% |
|
T |
-1.28% |
-4.16% |
|
S |
+2.43% |
-50.35% |
|
TMUS |
+4.63% |
-14.37% |
|
VOD |
-4.51% |
-0.30% |
|
CHL |
+1.62% |
+23.05% |
|
AMX |
-1.13% |
+6.89% |
|
CMCSA |
-5.90% |
+2.68% |
|
DISH |
-6.60% |
+3.79% |
Over the last five trading sessions, the share price of most of the major telecom stocks moved south. However, one notable exception was T-Mobile US Inc. (TMUS) which gained 4.63% over the same time frame as the company reported strong subscriber gain in the fourth quarter of 2014.
Meanwhile, over the last six months, the price performance of key telecom stocks was mixed. China Mobile Ltd. (CHL) witnessed a considerable rally in stock price of 23.05% while Sprint Corp. (S) collapsed a massive 50.35% and T-Mobile US lost 14.37% of value.
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. Therefore, we expect stocks to trade in line with the broader market movement at least in the near-term.
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