In the past five trading days, telecom stocks witnessed a downtrend as uncertainty regarding trade negotiations lingered amid fears of a potential U.S. recession. Although key issues relating to forced technology transfer and subsidies of state-owned enterprises by China apparently remained unresolved, the latest hurdle seems to be a unilateral U.S. insistence to re-impose tariffs if the deal is abrogated. To add to the woes, falling U.S. Treasury bond yields suggest difficult economic times ahead.
As the United States and China seem eager to walk the extra mile to reach a consensus decision that honors domestic obligations as well as international commitments, negotiations continue to iron out the differences. The U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are scheduled to travel to Beijing later this week to meet a Chinese delegation led by Vice Premier Liu He for further discussions. In addition to some sticking points on subsidies, cyber theft, public sector enterprises, IP rights and so-called forcible technology transfers, the biggest stumbling block appears to be a firm U.S. stance to re-impose tariffs unilaterally if China revokes on the trade agreement. Although China has reportedly agreed to periodic meetings at the levels of office director, vice minister and minister to keep a tab on its deal commitments, it is resisting to univocal U.S. powers and its inability to retaliate with its own punitive measures.
As the industry awaits further clarity on policy issues and its aftereffect with no official statement release, there remains an element of uncertainty in the domestic market. Meanwhile, the yield on the 10-year Treasury bond was lower than the three-month Treasury bill, a condition known as an inverted yield curve, speculating fears of a recession. Although a healthy American labor market with rising wages allayed the alarm bells, concern regarding a possible market correction remained a latent threat.
Among other developments, the bill introduced by the Democratic lawmakers in the House and Senate to reinstate the net neutrality rules that the Federal Communications Commission had repealed in 2017, passed through a subcommittee markup, paving the way for a full vote in the House of Representatives in April. Titled ‘Save the Internet Act’, the bill aims to discourage blocking or throttling content and consider Internet access as a “utility” under Title II of the Communications Act. Although it is expected to pass the House, stiff resistance is apprehended in the Senate where Republicans hold the majority. Moreover, the bill is likely to be vetoed by Trump as he had been vocally skeptical of net neutrality in the past.
In the meantime, leading domestic telecom players have joined forces to clamp down on robocalls or unwanted phone calls by aiming to set up updated technology by the end of the year. These include free spam detection and blocking app to the introduction of new tool for the identification of spoofed calls. Such strategic moves seem to be the call of the hour to strengthen the market position as Huawei, China’s leading smartphone and communication equipment manufacturer, recorded strong sales year to date. Despite negative publicity and U.S. advice to allied countries to shun Huawei, revenues jumped 36% over the first two months of 2019, underlining its strength in smartphone, computing and communications networks businesses.
Regarding company-specific news, strategic restructuring, acquisition, divestment and collaborations primarily took the center stage over the past five trading days.
Recap of the Week’s Most Important Stories
1. AT&T Inc. T has averted a potential blackout of Viacom Inc. channels like MTV, Nickelodeon and Comedy Central in DirecTV by inking a renewed contract well past the official deadline. The deal has put to rest potential conflicts between the two powerhouses that jeopardized the uninterrupted delivery of popular shows and contents across the telecom carrier's pay TV service.
The two companies continued their negotiations past the set deadline of Mar 22 midnight to stave off a shutdown, and a deal for an undisclosed amount was finally reached. (Read more: AT&T Averts Viacom Blackout in DirecTV With Renewed Contract)
2. As the digital barriers between wireless telecom and cable firms seem to blur with a consolidated product portfolio, various companies from these two industries are stepping into each other’s territory to tap a niche market. T-Mobile US, Inc. TMUS is the latest to follow this trend. The company has launched a pilot home broadband Internet service for rural and underserved markets to disrupt the cable industry.
T-Mobile has rolled out the pilot project for existing customers on an invitation-only basis due to LTE network and spectrum capacity constraints and intends to reach about 50,000 rural and underserved U.S. households by the end of this year. Although this represents a small fraction of the entire population (about 0.04%), the carrier expects to amplify its coverage to extend service to more than half of U.S. households (approximately 9.5 million) by 2024 through Sprint Corporation S merger. (Read more: T-Mobile Launches Home Broadband to Disrupt Cable Industry)
3. Ericsson ERIC has inked a three-year Memorandum of Understanding (MoU) with South Korean wireless telecommunications operator SK Telecom to help drive the evolution of 5G network in the country. At the same time, the company has secured a deal from South Korea's largest telecom firm KT to support its transition to 5G network as local operators target 5G launch in the country in April 2019.
The MoU focuses on the development of more agile and programmable 5G standalone core network that efficiently manages growth with automation and simplified operations. (Read more: Ericsson Gears Up for South Korea 5G Launch With Local Firms)
4. Nokia Corporation NOK announced that it has inked a deal with A1 — a leading Austrian fixed and mobile network operator — to expand next-generation 5G mobile communications in the European country. Financial terms of the contract were not disclosed.
The agreement strengthens the long-standing partnership between A1 and the Finnish telecom equipment supplier, which has seen the successful expansion of 3G, 4G/LTE mobile networks and roll-out of Austria’s largest fiber-optic network. (Read more: Nokia Partners A1 to Build 5G Mobile Networks in Austria)
5. Recently, TELUS Corporation TU announced that it is going to invest $95 million in wireless and fiber optic networks across rural communities in Greater Quebec City and Eastern Quebec this year. Notably, this amount includes a contribution of $25.7 million from the federal Connect to Innovate and provincial Québec branché programs to help modernize networks.
The move is aimed at fostering the company’s deployment of ultra-high-speed and fiber optic networks to 34,000 new families and businesses in 80 remote locations. (Read more: TELUS to Invest $95 Million in Quebec for Upgrading Network)
The following table shows the price movement of some of the major telecom stocks over the past week and during the past six months.
In the past five trading days, Verizon Communications was the biggest gainer with its share price increasing 5.3% while Sprint was the largest decliner with its stock down 4.1%.
Over the past six months, SBA Communications has been the best performer with its stock appreciating 18.8% while Qualcomm declined the most with its shares falling 27.6%.
Over the past six months, the Zacks Telecommunications Services industry has declined 0.7% compared with the the S&P 500’s fall of 3.9%.
What’s Next in the Telecom Space?
In addition to product launches and deployment of 5G technologies, all eyes will remain glued to how the United States and China continue their negotiations for a long-term solution to the trade war.
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