Telephone & Data Systems Banks on Wireless, Broadband
On Sep 15, we issued an updated research report on Telephone & Data Systems Inc. (TDS).
The company reported mixed second-quarter 2014 results, with earnings missing the Zacks Consensus Estimate but revenues beating the same. Likewise, while earnings deteriorated on a year-over-year basis, the top line increased over the same period. Within the wireless segment, customer churn remains a primary concern apart from a higher mix of smartphones and higher subsidies on 4G LTE devices. Further, the carrier’s subsidiary United States Cellular Corporation’s (USM) high-margin roaming revenues also remain under pressure due to lower voice usage and roaming rates.
On the wireline front, Telephone and Data Systems faces competition from incumbent local exchange carriers. Additionally, the company continues to experience declines in access lines owing to wireless substitution and other alternative services.
Telephone and Data Systems’ second-quarter results were significantly impacted by declines in legacy voice subscribers and wholesale revenues. During the second quarter, the company registered loss of 44% on equipment sale from the wireline segment.
However, these headwinds can be largely mitigated by several initiatives taken by the company which include increasing handset offerings and expansion of the LTE (Long Term Evolution) technology in the wireless business. To increase smartphone penetration, the company has also initiated Shared Data plans for consumers and business and is expected to benefit from unprecedented data consumption trend, while its connected device will enhance data usage, thereby boosting its ARPU. Currently, the company carries a Zacks Rank #3 (Hold).
Telephone and Data Systems also continues to look for opportunities in the broadband division to create long-term value for itself. In 2013, the company acquired Baja Broadband and benefited from the latter’s expertise in high-speed broadband and voice services. The carrier continues to upgrade its video products across various Baja markets with around 20 new launches. Further, to be more competitive, the company adjusted its pricing, which in turn will likely help improve its market penetration.
On Sep 2, 2014, the carrier extended its cable growth strategy by completing the acquisition of all assets of BendBroadband for $261 million in cash. Although BendBroadband has a higher penetration than Baja, yet management is optimistic about capturing additional data market share through the acquisition.
In addition, opportunities in hosted managed services will further drive the company’s performance. In this regard, the Vital Support Systems acquisition has boosted Telephone and Data System’s technical capabilities by supporting data center infrastructure, hosting and cloud-based offerings provided through its Host and Management Service (:HMS) platform.
Other Stocks
Some Zacks Rank #1 (Strong Buy) stocks worth considering at the moment are Telefonica SA (TEF) and China Mobile Limited (CHL).
Read the Full Research Report on TEF
Read the Full Research Report on TDS
Read the Full Research Report on CHL
Read the Full Research Report on USM
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