The telecom industry experienced a good run on the bourses last week as all key stocks traded in the green. Several significant developments ruled the headlines with Verizon Communications Inc. VZ at the forefront.
The telecom giant has decided to acquire privately held Telogis Inc., a California-based developer of cloud-based solutions for mobile workforces, specifically telematics, compliance and navigation software. The financial terms of the deal are yet to be disclosed. The deal is expected to be closed in the second half of 2016 subject to customary regulatory approval.
Moreover, the wireline division of Verizon is again operating in full swing as the strike called by members of the two workers' unions officially ended on Jun 17, 2016. Nearly 36,500 workers of the company's wireline and cable TV (FiOS Internet and TV) segment went to strike since Apr 13, 2016.
On the other hand, Verizon's claims of providing the highest Internet speeds in the industry were recently questioned by the advertisement watchdog, National Advertising Review Board (NARB), following a complaint lodge by Comcast Corp. CMCSA . As per the NARB, the advertisement in question didn't convey the exact facts. Instead, they found Comcast Gigabit to offer the fastest Internet service. Nevertheless, the regulatory body has refrained from using words like misleading or deceptive related to the advertisement. The NARB panel further recommended that Verizon revise its claim of providing high picture quality services.
In a major industry-wide development, Federal Communications Commission (FCC), the U.S. telecom regulator, has decided to vote on new rules to lay the groundwork for 5G network. This was proposed by the FCC Chairman Tom Wheeler. The vote is scheduled to take place on Jul 14, 2016. With this, the U.S. is likely to become the first country in the world to identify and open up a significant amount of spectrum suitable for the upcoming fifth-generation (5G) wireless network which will provide ultra-fast data transfer speed.
Another merger and acquisition story surfaced last week with CenturyLink Inc. CTL buying cloud app management specialist, ElasticBox. The transaction will allow CenturyLink customers to manage applications across 12 different cloud providers including the likes of Amazon.com Inc.'s AMZN Amazon Web Services, International Business Machines Corporation's IBM Softlayer service, Microsoft Corp.'s MSFT Azure and Alphabet Inc.'s GOOGL Compute Engine. Through ElasticBox, CenturyLink will be able to provide a one-stop solution to all its business enterprise customers who use different cloud facilities for different processes by allowing the user to deploy multiple cloud endpoints.
Meanwhile, subscribers of DISH Network Corp. DISH are facing another blackout, this time from NFL Networks. Both the parties locked horns over carriage renewal fees, which have been deemed as too high by DISH. Due to the ongoing dispute, NFL Network and NFL RedZone channels have gone dark on DISH's network from Thursday evening. We remind investors that DISH Network is also involved in a dispute with Tribune Media Co. TRCO over another carriage agreement.
Outside the U.S., the European Union Competition Commission (EC) has decided to take a decision on the proposed joint venture (JV) between Vodafone Group Plc. VOD and Liberty Global Plc. LBTYA in the Netherlands on Jul 19, 2016. However, this deadline is provisional and can be extended if the regulatory authority wants to extensively investigate the potential impact of this JV on the competitiveness of the Dutch market.
Read the last Telecom Stock Roundup for Jun 16, 2016 .
Recap of the Week's Most Important Stories
1. The FCC will try to free up high-band spectrum - technically known as the centimeter (cmWave) and millimeter wave (mmWave) bands - which are one of the building blocks of the 5G wireless standard.Ultrafast 5G mobile networks will be of utmost necessity in managing the exponential growth of Internet-connected devices, popularly known as Internet of Things (IoT) and autonomous vehicles (to be controlled in the cloud).Nevertheless, a full-fledged 5G network deployment is not likely to start until 2020 (read more: FCC to Vote on Spectrum Rules for 5G Network on July 14 ).
2. Verizon is an already active player in the fleet management and telematics business through its Verizon Telematics subsidiary, which has operations in 40 countries. Telogis' products and services are used and distributed in more than 100 countries worldwide. Its state-of-the-art software platform will significantly enhance Verizon Telematics' distribution relationship business for connected vehicles and mobile enterprise management (read more: Verizon to Strengthen Foothold in Connected Vehicle Market ).
3. Verizon and its wireline workers were at a stalemate over a labor contract. The company's wireline employees were working out of contract since last August. On May 31, Verizon and the striking unions, The Communications Workers of America (CWA) and International Brotherhood of Electrical Workers (IBEW), entered into a tentative deal following which all striking workers resumed work from Jun 1. However, union members were given a deadline of Jun 17 to vote on the tentative contract. Accordingly, the members of both unions voted and ratified the tentative agreement (read more: Verizon Wireline Workers Return to Work in Full Force ).
4. Over the last three years, CenturyLink made an all-out effort to establish itself as a global leader in cloud infrastructure and hosted IT solutions designed for enterprise customers. Further, the company's strong network capabilities, integrated hosting and network solutions are likely to promote growth in the cloud business. In the increasingly complex world of cloud computing, the ElasticBox acquisition will allow CenturyLink to mix and match different cloud service providers and effectively manage applications, thereby making things easier for enterprise IT organizations (read more: CenturyLink Acquires Hybrid Cloud Vendor ElasticBox ).
5. In Feb 2016, British telecom giant Vodafone and Liberty Global decided to merge their Dutch operations to form a 50-50 JV. As per the agreement, Vodafone will pay €1 billion (approximately $1.12 billion) in cash to Liberty Global to bring the valuation of each of their local units on par. The two companies are expecting to achieve cost and revenue synergies of €3.5 billion (around $3.9 billion) after factoring in integration costs. The deal is expected to close by end 2016, subject to regulatory approval (read more: 4G LTE & LTE-A Network Deployment Gain Strong Momentum ).
The following table shows the price movement of the major telecom players over the past week and the last six months.
Last 6 Months
Over the last five trading sessions, share price movement of all major telecom stocks was positive. In particular, the stock price of Sprint (15.57%) moved northward significantly followed by a solid gain for Vodafone (5.47%).
Over the last six months, the price performance of most of the key telecom stocks was also positive. Among the stocks that gained significantly were AT&T (23.21%), Verizon (19.27%) and Sprint (17.11%). On the contrary, America Movil (16.05%) depreciated the most over the same time frame.
What's Next in the Telecom Sector?
We do not see any significant change in the telecom industry in the coming week. Macroeconomic factors will also have little impact on the industry in the week ahead. However, a series of macroeconomic data pertaining to the U.S. economy are slated for release. These include final estimate of the U.S. GDP for the first quarter of 2016, consumer confidence index and PCE inflation data. We believe these data will be closely monitored by investors and will have an impact on the markets.
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