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Telecom Stock Roundup: Mixed Q4 for Verizon, AT&T and Qualcomm, FCC to Close Incentive Auction

Zacks Equity Research

The telecom industry experienced a strong run on the bourse last week as most of the key stocks traded in the green. On the earnings front, U.S. telecom behemoths Verizon Communications Inc. VZ and AT&T Inc. T and mobile chipset giant Qualcomm Inc. QCOM reported mixed financial results in the fourth quarter of 2016.

Verizon beat the Zacks Consensus Estimate for revenues while EPS (earnings per share) significantly lagged estimates. The company added 0.591 million of postpaid customers (down 61.1% year over year) while prepaid customer count decreased by 0.009 million. On the other hand, AT&T’s bottom line met the Zacks Consensus Estimate while the top line lagged. Nevertheless, the company stated that its streaming TV service – DirecTV Now – was instrumental in retaining wireless customers.

Qualcomm also reported mixed financial results in the first quarter of fiscal 2017 (ended Dec 31, 2016) wherein the bottom line matched the Zacks Consensus Estimate while the top line missed the same. Moreover, Qualcomm has recently been pressed with a $1 billion lawsuit related to licensing royalty payments by tech giant Apple Inc. AAPL. Apple has accused Qualcomm of overcharging for chips and refusing to pay some $1 billion in promised rebates.

Meanwhile, two major developments took place in the Federal Communications Commission (FCC) – the U.S. telecom regulator. Recently, President Trump selected existing Republican commissioner Ajit Pai as the new Chairman of the FCC.

The appointment of Pai as the head of the regulatory body appears to put net neutrality back on the front burner as he is a staunch net neutrality opponent. Notably, in Nov 2016, the FCC had abandoned its plans to reform the Business Data Services (BDS) market and had decided not to proceed with its set top box reform proposals, the two game-changing decisions taken by the Obama regime.

Further, FCC’s ongoing 600 MHz low-band wireless spectrum auction, popularly known as Incentive Auction, finally cleared all criteria at the Stage 4 of the forward bidding process. With this, the FCC will complete the whole Incentive Auction process after declaring the name of the spectrum winners. The much hyped auction has turned out to be a massive disappointment.

Although, the regulatory body is yet to declare the total amount collected from the spectrum sale, it will certainly not be anywhere near the required $88.4 billion for the whole process to be successful. The FCC had initially estimated to collect at least $60 billion from Incentive Auction.

U.S. national wireless carrier Sprint Corp. S is forging ahead in the content-driven services market. On Jan 23, 2017, Sprint announced that it has decided to acquire 33% of TIDAL, the global music and entertainment platform owned by rap artist and entrepreneur Jay Z. As per the deal, TIDAL and its artists will make exclusive content available only to current and new Sprint customers. Sprint currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In Mexico, telecom behemoth America Movil SAB AMX has decided to launch a Mexican language TV channel in the U.S. named Nuestra Vision. The new TV channel is slated to be launched later this year and will be offered by the America Movil unit Publicidad y Contenido Editorial. The TV channel will broadcast news, movies and sports highlights.

In a separate development, pay-TV and media giant, Grupo Televisa SA TV suffered a major setback as a Mexican tribunal questioned the country’s telecom regulator’s favorable judgement regarding Televisa's monopolistic prowess. This might compel the regulatory body to reassess and impose special antitrust measures on the company.

Read the last Telecom Stock Roundup for Jan 19, 2017.

Recap of the Week’s Most Important Stories

1.    Quarterly GAAP net income at Verizon was $4,600 million or $1.10 per share compared with $5,513 million or $1.32 per share in the year-ago quarter. Adjusted earnings per share came in at 86 cents in the reported quarter, below the Zacks Consensus Estimate of 89 cents. Quarterly total revenue decreased 5.6% year over year to $32,340 million but outpaced the Zacks Consensus Estimate of $32,160 million. (read more:  Verizon Posts Mixed Q4: Earnings Lags, Revenues Top.)

2.    On a GAAP basis, AT&T reported net income of $2,437 million or 39 cents per share in comparison with $4,006 million or 65 cents, in the year-ago quarter. Quarterly adjusted earnings per share were 66 cents, in line with the Zacks Consensus Estimate. Quarterly total revenue edged down 0.7% year over year to $41,841 million but fell below the Zacks Consensus Estimate of $42,113 million. (read more:  AT&T Earnings Meet, Revenues Miss Estimates in Q4.)

3.    On a GAAP basis, quarterly net income at Qualcomm was $682 million or 46 cents per share compared with $1,498 million or 99 cents per share in the year-ago quarter. Meanwhile, adjusted (excluding special items) earnings per share were $1.06, in line with the Zacks Consensus Estimate. Total quarterly revenue of $5,999 million rose 3.87% year over year, but failed to beat the Zacks Consensus Estimate of $6,106 million. (read more:  Qualcomm Q1 Earnings In Line, Revenues Fall Short.)

4.    The Incentive Auction, which commenced on Mar 29, 2016, completed its first part in Jul 2016. In that part, which was essentially a reverse auction, the airwaves were freed by TV broadcasters that no longer had any productive use of the same. In Jan 2016, the then FCC Chairman Tom Wheeler had asserted that the Incentive Auction will be the “world's largest spectrum auction that has ever taken place.” However, the optimism finally has become a distant dream.  (read more:   FCC to Close Incentive Auction, Benchmark Meets at Stage 4.)

5.    Qualcomm generates approximately 29% of its total revenue from the licensing business. However, this business accounts for almost 77% of the company’s net profit. Apple and Samsung Electronics are the two major customers of Qualcomm’s chipsets for modems that connect phones to wireless networks. The companies together accounted for over 40% of Qualcomm's $23.5 billion in revenues in fiscal 2016 (ended Sep 2016). Thus, a royalty lawsuit from Apple may harm Qualcomm in big way. (read more:   Qualcomm Faces $1B Patent Royalty Suit from Apple.)

Price Performance

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

Company

Last Week

Last 6 Months

VZ

-5.41%

-9.20%

T

1.22%

-2.34%

S

5.26%

47.04%

TMUS

3.30%

35.04%

VOD

-4.25%

-21.72%

CHL

1.11%

-10.36%

AMX

4.53%

4.78%

CMCSA

0.80%

9.32%

DISH

0.32%

19.21%

Over the last five trading sessions, share price movement of most of the major telecom stocks was positive. Sprint (5.26%), America Movil (4.53%) and T-Mobile US (3.30%) gained significantly in the same time frame while Verizon (5.41%) and Vodafone (4.25%) were major losers.

However, over the last six months, the price performance of most telecom stocks witnessed a mixed trend. Among the stocks that gained significantly are Sprint (47.04%), T-Mobile US (35.04%) and DISH Network (19.21%). On the other hand, Vodafone and China Mobile lost 21.72% and 10.36%, respectively, in the same time period.

What’s Next in the Telecom Space?

We expect a busy week ahead for the telecom sector as behemoths like Sprint, Vodafone and BCE Inc. are slated to release their quarterly earnings results. In addition, Nokia and Motorola Solutions are also slated to report their fourth-quarter 2016 results.

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QUALCOMM Incorporated (QCOM): Free Stock Analysis Report
 
AT&T Inc. (T): Free Stock Analysis Report
 
Sprint Corporation (S): Free Stock Analysis Report
 
Verizon Communications Inc. (VZ): Free Stock Analysis Report
 
Grupo Televisa S.A. (TV): Free Stock Analysis Report
 
Apple Inc. (AAPL): Free Stock Analysis Report
 
America Movil, S.A.B. de C.V. (AMX): Free Stock Analysis Report
 
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