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Telecom Stock Roundup: Charter Communications Allegedly Rejects Verizon's Bid, AT&T to Buy Vyatta

Zacks Equity Research

The telecom industry continued its strong run on the bourse last week as most of the key stocks traded in the green.

U.S. telecom behemoth Verizon Communications Inc. VZ was in the limelight last week, primarily for three reasons. First, as per a report by the New York Post, leading cable MSO Charter Communications Inc. CHTR has rejected an acquisition offer of more than $100 billion by Verizon. However,none of the two companies came out with any official statements regarding the matter.

Second, in a separate report, New York Post stated that Verizon is considering a strategic option to invest $100 million in online music streamer Pandora Media Inc. P. Notably, satellite radio service provider Sirius XM Holdings Inc. SIRI has been in discussions to purchase Pandora for a total consideration of about $2.8 billion. Verizon will invest in Pandora if its sale to Sirius XM does not materialize.

Third, Verizonhas inked a managed services deal with Ericsson ERIC wherein the latter will be deploying Verizon's Managed Software Defined Wide Area Network (SD WAN) for its corporate IT, including virtualized security services and Managed Enterprise Radio Access Network (E-RAN) solutions.

Meanwhile, U.S. telecom giant AT&T Inc. T has unveiled plans to purchase the Vyatta network operating system and associated assets of Brocade Communications Systems Inc. BRCD. Vyatta platform includes the vRouter product line. As part of the deal, AT&T is also interested in hiring some of Brocade’s employees associated with Vyatta business.

Additionally, AT&T has unveiled a new video and unlimited wireless offering for AT&T Unlimited Choice customers and AT&T Unlimited Plus customers. The Unlimited wireless offering comes in the form of a contract-free or credit-free system.

As per a recent report by Bloomberg, U.S. mobile chipset giant, Qualcomm Inc.’s QCOM proposed acquisition of the Netherlands-based mobile chipset giant NXP Semiconductors NV NXPI is facing some hindrances.According to the report, Elliott Management Corp. and two other large shareholders of NXP Semiconductors have decided to approach the company to renegotiate terms of the deal, which they consider grossly undervalued.

Satellite TV operator DISH Network Corp. DISH was recently penalized by the U.S. District Judge for the Central Illinois District, Sue Myerscough with a fine-cum-damage recovery cost of $280 million in relation to the eight-year-old ‘robocall’ telemarketing lawsuit. It is a milestone judgment in such a case. DISH Network currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Read the last Telecom Stock Roundup for Jun 1, 2017.

Recap of the Week’s Most Important Stories

1.    Given the scope for revenue and cost synergies from a merger, Verizon is eyeing a cable acquisition to help launch its high-speed 5G wireless plans. These plans require the fiber-optic networks that cable companies possess. Charter Communications’ wide and dense fiber-optic network could be valuable for Verizon’s 5G wireless data services. Verizon is currently conducting customer trials in 11 U.S. cities for fixed 5G wireless network. The company is focusing on building a fiber and wireless infrastructure in a bid to deliver mobile video efficiently. (Read more: Has Charter Communications Rejected Verizon's $100B Offer?)

2.    Verizon is working hard to develop its online digital media business. Its proposed acquisition of Yahoo is currently under regulatory review. The company is planning to unite its AOL division with Yahoo’s core Internet assets under one umbrella – Oath. We believe that return from the investment in Pandora will be accounted in Oath. (Read more: Is Verizon Mulling Over $100M Investment in Pandora?)

3.    On completion of the deal, AT&T will own the Vyatta network operating system, including its virtual network functions (VNFs) and distributed services platform, software under development as part of its unreleased roadmap, existing software licenses, and related patents and patent applications. The Brocade employees who will be joining AT&T are mostly located in California and the UK. (Read more: AT&T's Latest Buyout to Boost its SD-WAN and White Box Suite)

4.    The use of Verizon’s software defined services will help Ericsson in the automation of operations, maintenance of application performance and enabling on-demand implementation of WAN policies. From an SD-WAN perspective, Ericsson’s technology helps Verizon in the proper management and organization of hybrid client networks in real time. (Read more: Ericsson to Deploy Verizon's Managed SD-WAN)

5.    After signing up, AT&T Unlimited Choice customers can enjoy unlimited talk, text and data, with a maximum speed of 3Mbps and more than 60 DIRECTV NOW channels for $70 a month. Subscribers can enjoy streaming standard definition (about 480p) video on LTE network. However, AT&T will slow down the data when one crosses the allotted 22GB data usage during periods of network congestion. (Read more: AT&T Set to Entertain its Unlimited Wireless Customers)

Price Performance

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

Company

Last Week

Last 6 Months

VZ

-0.09%

-9.06%

T

0.47%

-4.08%

S

1.41%

-1.14%

TMUS

-2.45%

12.59%

CHTR

-0.11%

23.97%

TEF

1.71%

29.93%

AMX

1.48%

28.10%

CMCSA

0.53%

21.02%

DISH

1.61%

8.28%

In the last five trading sessions, share price movement of most of major telecom stocks was positive. However, the stock price movements were not significant. Likewise, in the last six months, the price performances of most of the major telecom stocks were positive. Among the stocks that gained substantially are Telefonica (29.93%), America Movil (28.10%), Charter Communications (23.97%), Comcast (21.02%) and T-Mobile US (12.59%).

What’s Next in the Telecom Space?

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. Consequently, we expect stocks to trade in line with the broader market.

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