Telecom Stock Roundup: Verizon and AT&T Wary of Lower Q4 Profits, Intense Price Competition a Concern

Last week, the telecom industry hit by a purple patch with all major telecom stocks losing value. This resulted from the disappointing financial outlook provided by telecom behemoths Verizon Communications Inc. (VZ) and AT&T Inc. (T).

Cutthroat pricing competition is compelling large telecom operators to indulge in higher promotional activities. While Sprint Corp. (S) is offering same data plan as Verizon and AT&T at 50% discount, T-Mobile US Inc. (TMUS) introduced a pocket-friendly LTE family data plan.

Meanwhile, outside the U.S., Vodafone Group Plc. (VOD) has invalidated rumors of acquiring Liberty Global Plc. (LBTYA). Management further stated that the company is not considering any acquisitions in the U.K. at present. In a separate development, French telecom operator Orange (ORAN) is awaiting a decision from BT Group Plc on whether the latter wants to bid for EE in the U.K. by Christmas.

Additionally, on the cable TV front, Comcast Corp. (CMCSA) recently introduced an innovative Ethernet Everywhere service called “Ethernet@Home” and Charter Communications Inc. (CHTR) wrapped up its digital migration project.

Recap of the Week’s Most Important Stories

1. Telecom stocks took a beating yesterday after leading wireless carriers, AT&T and Verizon hinted at expectations of lower profits in the ensuing fourth quarter owing to intense competition. Yesterday, AT&T’s chief financial officer expressed fears of facing considerably wider fourth-quarter churn rate than the year-ago quarter. However, the company expects to add customers in spite of this.

AT&T also expects higher promotional expenses to hurt wireless service margins in the quarter. On Dec 8, 2014, Verizon announced expectations of lower earnings in the final quarter of 2014, owing to higher promotional expenses and price cuts. These strategies are likely to impact the company’s wireless segment EBITDA and EBITDA service margin as well. (Read More: Telecom Stocks Down on Fears of Lower Q4 Earnings.)

2. T-Mobile US has announced the launch of a new family plan which offers unlimited talk-time, voice messages, text messages and 4G LTE data. While the other national carriers are still marketing their complex shared data plans, with this new scheme, T-Mobile aims to enhance value and benefits for customers while also simplifying it.

The new Simple Choice plan begins at a nominal $100 per month for two people and is available from Dec 10, 2014 for a limited period. However, customers can carry on with the plan beyond the offer period. (Read More: T-Mobile Intros Pocket-Friendly Unlimited 4G Family Plan.)

3. Frontier Communications Inc. (FTR) has updated its financial outlook for 2014. The company raises its outlook as a result of its recent acquisition of AT&T’s wireline operations in Connecticut.

On Oct 24, 2014, Frontier Communications completed its $2 billion acquisition of AT&T’s wireline operations in Connecticut and its related statewide fiber network and U-verse operations. The company will now offer broadband, voice, video and other products to residential and business customers in Connecticut. (Read More: Frontier Communications Updates 2014 Financial Outlook.)

4. French telecom giant Orange expects to complete its operational restructuring process in Europe this year itself. The company is presently awaiting a decision from BT Group on whether it wants to bid for EE in the U.K. Notably, EE is jointly held by Orange and Deutsche Telekom of Germany.

In the meantime, Orange is also positive about its proposed acquisition of Jazztel Plc., which offers broadband services along with fixed-line and mobile phones services to enterprise and consumer markets in Spain. (Read More: Orange's Europe Restructuring Hinged on BT Group Decision.)

5. Early this week, the rumour of Vodafone mulling over the acquisition of Liberty Global was making rounds of the U.K. telecom circle. However, the week comes to an end with Vodafone invalidating the Liberty Global merger talks. Vodafone is presently striving to fortify its fixed-broadband network. Vodafone expects introduction of fixed broadband service in the U.K. will help the company maintain its position in the wireless market as well. (Read More: Vodafone Brushes off Rumors of Acquiring Liberty Global.)

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 of all major telecom stocks was negative. T-Mobile US lost the highest value of 10.46%. The substantial value loss can be attributed to telecom operator’s concern over intense price competition.

However, over the last six months, the price performance of key telecom stocks was mixed. China Mobile and DISH witnessed considerable rally in stock prices of 20.08% and 18.79%, respectively, while Sprint collapsed a massive 50.68% and T-Mobile US lost 24.00% of value over the same time frame.

What’s Next in the Telecom Sector?

The ongoing AWS-3 spectrum auction conducted by the Federal Communications Commission has accumulated nearly $42 billion after the completion of 68^th round of bidding. The auction will continue in the coming week as well. Apart from this, we do not foresee any significant event in the telecom industry in the near future. Therefore, we expect stocks to trade in line with the broader market movement.

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