Telecom Stock Roundup: FCC Incentive Auction Sees Price Cut, FTC Challenges AT&T's Data Throttling Ruling

The telecom industry experienced a good run on the bourses last week as most of the key stocks traded in the green. The U.S. telecom regulator, Federal Communications Commission (FCC), has reduced the clearing target price of the ongoing 600 MHz low-band wireless spectrum auction, popularly known as the Incentive Auction. At present, the regulatory body is going through the stage 2 of the second part of the auction.

In stage 2, the FCC reduced the event clearing spectrum size to 114 MHz instead of 126 MHz fixed earlier. Consequently, the auction clearing target price has also been lowered substantially to $54.6 billion from the initial target price of $86.4 billion. The FCC has received as many as 62 applications for the second part of the Incentive Auction. All the bidders have made upfront payments.

Meanwhile, the Federal Trade Commission (FTC) recently filed an appeal in the U.S. Court of Appeals for the Ninth Circuit in San Francisco, to review the previous ruling regarding a data throttling charge issued by the FTC against the U.S. telecom behemoth AT&T Inc. (NYSE:T) . Data throttling basically means data traffic blocking and slowing any data traffic once customers hit certain usage thresholds in a month.

In a separate development, AT&T initiated direct roaming mobile interconnection services in Cubastarting Oct 18.AT&T’s customers will now be able to connect through talk, text and data while in Cuba at price rates of $3 per minute on the phone, 50 cents per SMS text, $1.30 per MMS text and $2.05 per MB of data.

U.S. telecom giant Verizon Communications Inc. (NYSE:VZ) plans to close seven call centers across five states that may lead to job loss of 3200 employees. The company deems the decision as a difficult but necessary one. Verizon intends to realign its real estate assets and customer service operations to make the optimum use of its call centers in other locations. Verizon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

At the cable TV front, Charter Communications Inc. (NYSE:T) selected ARRIS International plc. (NASDAQ:ARRS) as its vendor partner for its next-generation WorldBox 2.0 set-top box. Initiated in early 2015, WorldBox 2.0 is Charter Communications’ innovative hybrid IP/QAM video platform which is built to offer traditional and cloud-based user interfaces, content, and new video features to its subscribers.

Leading wireless chipset manufacturer Qualcomm Inc. (NASDAQ:QCOM) is leaving no stone unturned to make good use of the upcoming 5G network opportunity. Recently, Qualcomm’s subsidiary, Qualcomm Technologies, Inc., made an announcement regarding the launch of the world’s first 5G modem Snapdragon X50 and gigabit modem Snapdragon X16 LTE.

Outside the U.S., Liberty Global plc. (NYSE:T) , a leading cable MSO (multi service operator) in Europe and Latin & Central America, entered into a definitive agreement to acquire the cable business of Multimedia Polska S.A. for a consideration of approximately $760 million. For video service, Multimedia Polska competes with UPC Poland and Vivendi (PA:VIV) SA and for Internet service, the company’s main competitor is Orange SA (NYSE:ORAN) .

Read the last Telecom Stock Roundup for Oct 13, 2016.

Recap of the Week’s Most Important Stories

1. The FCC was initially hopeful of completing the Incentive Auction by the end of the third quarter of 2016. However, industry watchers are now anticipating it to be more prolonged and it is likely to continue till early 2017. Some industry watchers have also predicted that telecom operators might need around 70 MHz to 80 MHz of spectrums in the 600 MHz bands instead of the total freed up 126 MHz airwaves. In such a scenario, the FCC might have to conduct another round of reverse auction for a reduced volume of spectrum at lower prices. (read more: FCC Reduces the Clearing Target Price for Incentive Auction.)

2. For the FTC case, AT&T hasn’t denied that it had throttled data for some users. However, the company defended itself citing that an exception is in place for common carriers. In Oct 2014, AT&T was a common carrier for landline phone and mobile voice service, but not for mobile Internet access. The FCC reclassified mobile Internet as a common carrier service only after adopting the Net Neutrality Rules. Notably, the FCC also slapped a fine of $100 million on AT&T for a similar reason in Jun 2015. The company has filed a response, which is still under review by the telecom regulator. (read more: FTC Appeals Court Ruling on AT&T's Data Throttling Case.)

3. President Barack Obama’s decision to normalize U.S. diplomatic and economic relations with Cuba, which has been considerably tensed since 1961, is starting to show results. Under Obama’s administration, new Cuban policy regulations, which have been approved by the Treasury and Commerce departments, aided the U.S. telecommunications industry to gain initial exemptions from the existing embargo to invest in Cuba. We believe, in the long-term, Cuba may be a boon for the U.S. telecom operators. (read more: AT&T Launches Direct Roaming Wireless Services in Cuba.)

4. Notably, Charter Communications has entered into a share warrant agreement with ARRIS. Per the deal, Charter Communications has the right to purchase up to 6 million shares of ARRIS’ stock before the end of 2018. ARRIS will make certain number of shares available to Charter Communications only after the cable MSO purchases a specific volume of ARRIS’ products and services, specifically that under Network & Cloud segment products. (read more: Charter Communications Nominates ARRIS for WorldBox 2.0)

5. Liberty Global already has a strong presence in Poland which operates under the UPC Poland brand. For video service, Multimedia Polska competes with UPC Poland and Vivendi SA and for Internet service, the company’s main competitor is Orange. Liberty Global will not be acquiring Multimedia Polska’s other businesses like insurance, gas and energy operations. (read more: Liberty Global Eyes Polska to Expand Footprint in Poland.)

Price Performance

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

Over the last five trading sessions, share price movement of major telecom stocks was positive barring China Mobile. DISH (4.20%) and Sprint (3.60%) gained significant value in the last five trading sessions. Likewise, over the last six months, the price performance of most telecom stocks was predominantly positive. Among the stocks that gained considerably were Sprint (81.05%), DISH (21.13%) and T-Mobile US (17.86%). On the other hand, America Movil and Vodafone (LON:VOD) lost 23.10% and 17.53%, respectively, over the same time frame.

What’s Next in the Telecom Sector?

We expect a lot of activity in the telecom sector over the next week as big names like Verizon, AT&T, Sprint, T-Mobile US and Comcast (NASDAQ:CMCSA) are slated to release their quarterly results. In addition, leading wireless towers operators like Crown Castle International (NYSE:CCI) and American Tower will also release their results. Non-US telecom bigwigs such as Orange, America Movil, Telefonica (MC:TEF), Chunghwa Telecom, Grupo Televisa and Telefonica Brasil will come up with their quarterly results as well. The market will closely evaluate these quarterly results in a bid to assess industry dynamics and growth prospects.

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