Telecom Stock Roundup: Sprint Aggravates Mobile Pricing War, Cable MSOs Lead SMB Segment

Last week, most of the major telecom stocks witnessed significant declines. However, this did not deter the telecom sector from engaging in consequential activities.

Sprint Corp. (S) intensified pricing competition in the wireless industry by offering same data plan at 50% concession in perpetuity to all AT&T Inc. (T) and Verizon Communications Inc. (VZ) customers if they switch to Sprint. This is seen to be a desperate attempt to make a turnaround as the company is gradually losing its foothold in the U.S. wireless industry.

Notably, the ongoing AWS-3 spectrum auction in the U.S. conducted by the Federal Communications Commission has accumulated a whopping $40.14 billion after 46^th round of bidding. The spectrum auction is still continuing. Meanwhile, Canada’s BCE Inc. (BCE) has decided to acquire Glentel to consolidate its retail footprint and Mexico’s America Movil SAB (AMX) recently won 3G and 4G spectrum in Argentina.

In a separate development, cable MSOs (multi-service operators) strengthened their footprint in the small and mid-sized business (SMB) segment. Additionally, strong demand for next-generation CCAP product-suit by cable MSOs also bodes well for cable TV equipment manufacturers.

Recap of the Week’s Most Important Stories

1. According to a recent report by LightReading, the SMB market opportunity is likely to cross $10 billion mark in 2014. Many industry researchers predict that the SMB segment will become a market opportunity worth $20 billion - $30 billion in the long-term. Comcast Corp. (CMCSA) is expected to garner around $4 billion in revenues, whereas Time Warner Cable Inc. (TWC), Cox Communications Inc. and Charter Communications Inc. (CHTR) are expected to generate approximately $3 billion, $2 billion and $1 billion of revenues, respectively, in 2014. (Read More: Cable MSOs Maintain Dominance Over the SMB Segment.)

2. Sprint is leaving no stone unturned to intensify the wireless pricing war in the U.S. The third largest wireless communication company in the country has claimed that it will reduce the phone bills of AT&T and Verizon customers by 50% if they switch to Sprint. Sprint’s new Cut Your Bill in Half Event, which will kick off from Dec 5, 2014, will give its network users unlimited talk and text options to anywhere in the U.S., irrespective of their current plan.

Sprint also promises to cut the monthly data plan charges by 50% for customers who are willing to change over from Verizon or AT&T. Moreover, the company will also pay early termination fee of up to $350 for customers interested to switch over to its network. (Read More: Sprint's Cut Your Bill in Half Deal to Target Rivals' Customers.)

3. Rapidly growing demand for the next-generation Converged Cable Access Platform (:CCAP) spells good times for cable TV gear manufacturers. According to a recent report by Infonetics Research Inc., global revenues generated by the CCAP segment rose 7% sequentially to $360 million in the third quarter of 2014.

The combined shipments of upstream and downstream DOCSIS channels for CCAP, CMTS, edge QAM modulator and coaxial media converts stood at around 1.2 million generating total revenue of $445 million. Major CCAP vendors who will benefit from this trend are Arris Group Inc. (ARRS), Cisco Systems Inc. (CSCO) and Casa Systems Inc. (Read More: Solid CCAP Demand: A Boon for Cable TV Equipment Makers.)

4. In an effort to enhance its retail presence in Canada, BCE Inc. has agreed to purchase Canadian retailer, Glentel Inc., for $586 million. The deal is expected to be sealed by the end of the first quarter of 2015, subject to consent from shareholders and regulators.Glentel has roughly 500 wireless outlets in Canada and sells wireless products and services from different carriers like Rogers Wireless, Bell Mobility, Fido, Virgin Mobile and SaskTel. The company runs 735 wireless outlets in the U.S. and 147 in Australia and the Philippines. (Read More: BCE Consolidates Retail Footprint in Canada with Glentel Buy.)

5. Argentine telecom operator Claro Argentina – a subsidiary of Mexican telecom behemoth America Movil S.A.B. – has stolen the show in Argentina’s airwaves auction which was conducted last month. The Argentine government has started distributing the spectrum lots and Claro has become the first company to win airwaves allocated for 3G and 4G services. Argentina's national federal entity, SeCom, revealed that Claro has won airwaves of frequencies 1800 MHz and 1900 MHz bands designated as 3G spectrum and two 4G frequency bands of 1700 MHz and 2100 MHz. (Read More: America Movil Wins 3G, 4G Airwaves Spectrum in Argentina.)

Price Performance

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

Over the last five trading sessions, the price movement for most of the major telecom stocks was negative. Sprint lost the highest value of 7.86% whereas Comcast and Vodafone gained marginally during the same time period.

However, over the last six months, the price performance of key telecom stocks was mostly positive. DISH and China Mobile witnessed a considerable rally in stock prices of 26.24% and 21.88%, respectively, while Sprint collapsed a massive 50.11% and T-Mobile US lost 17.44% of value 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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Read the Full Research Report on T
Read the Full Research Report on S
Read the Full Research Report on ARRS
Read the Full Research Report on CSCO
Read the Full Research Report on AMX
Read the Full Research Report on BCE
Read the Full Research Report on VZ
Read the Full Research Report on CMCSA
Read the Full Research Report on CHTR
Read the Full Research Report on TWC


Zacks Investment Research