In the last week, all major telecom stocks lost value. This was in line with the broader market (S&P 500) movement due to a surge in the US dollar with respect to other major currencies, especially the Euro, and renewed fears of an interest rate hike by the Fed. Nevertheless, this did not keep the telecom sector from witnessing consequential activities.
Qualcomm (NASDAQ:QCOM), the largest global manufacturer of mobile chipsets, announced a new $15 billion share buy-back program and also raised quarterly dividend per share by 14.3%. On the other hand, a recently published Leichtman Research Group report highlights that the nightmare of the U.S. pay-TV industry continues as subscriber loss increases year over year. However, cable MSOs continue to gain traction in the high-speed Internet market, outpacing telecom operators.
Outside the U.S., Turkcell Iletisim Hizmetleri AS (NYSE:TKC), the largest integrated telecom operator in Turkey, is facing considerable difficulties owing to a falling Turkish Lira with respect to the U.S. dollar. The currency has depreciated around a strong 11% year-to-date which led to a stock price decline of a heavy 20.5% for Turkcell over the same time.
Meanwhile, leading Canadian telecom operator TELUS Corporation (NYSE:TU) purchased 15 MHz of AWS-3 spectrum for $1.5 billion. The Canadian government has recently concluded the auction of advanced wireless access (AWS-3). (Read the last Telecom Stock Roundup for Feb 26, 2015).
Recap of the Week’s Most Important Stories
1. Research firm Leichtman Research Group Inc. (LRG) recently reported that 13 major U.S. pay-TV operators lost a total of about 125,000 video subscribers in 2014 compared with 95,000 in 2013. These 13 major pay-TV operators currently constitute approximately 95% of the nation’s total video market. Notably, the U.S. pay-TV market comprises three kinds of service providers, namely, cable MSOs (multi-service operators), satellite TV operators and fiber-based telecom operators.
Despite such a difficult scenario, cable MSOs have a reason to rejoice as cable TV industry witnessed a narrower customer churn rate year over year. Importantly, cable TV operators were mostly most vulnerable to challenges arising from fiber-based TV and online video streaming services. As reported by LRG, in 2014, the top nine cable TV operators collectively lost nearly 1.2 million video subscribers compared with a loss of 1.7 million subscribers in 2013. (Read More: Distressing Time for U.S. Pay-TV as Customer Churn Soars.)
2. U.S. cable MSOs (multi-service operators) have a reason to smile as a recent report of Leichtman Research Group Inc. (LRG) revealed encouraging data which illustrates cable MSOs’ dominance in the high-speed broadband (Internet) market, steering past the telecom industry. This comes as a respite at the time when the cable TV operators have been losing foothold in the core video market to fiber-based telecom operators and online video streaming service providers.
For the first-time in the 65-year long history of the cable TV Industry, cable MSOs outpaced telecom operators in the high-speed data market during the second quarter of 2014. Cable MSOs further consolidated their positions in the second half of 2014 as per LRG reports. (Read More: Cable TV Gains Traction in Broadband Market, Outpaces Telecom.)
3. Qualcomm recently announced a share buyback program wherein the company will purchase up to $15 billion worth of shares. The company has also raised its quarterly cash dividend. The latest share repurchase program, effective immediately, replaces the previous buyback which had $2.1 billion authorization remaining.
Within twelve months of the latest share repurchase announcement, the company aims to buy back $10 billion of shares. Meanwhile, the company hiked its quarterly dividend by 14.3% to 48 cents from 42 cents per share. This brings the yearly dividend figure to $1.92 per share. (Read More: Qualcomm Approves $15B Buyback, Raises Dividend; Stock Up.)
4. TELUS recently purchased 15 MHz of AWS-3 spectrum for $1.5 billion. The company plans to utilize this spectrum in enhancing its network foundation across both rural and urban areas. TELUS expects to integrate the recently-acquired spectrum into its present network. This incorporation will considerably improve the company’s ability to introduce new products in the market.
With an aim to meet the growing demand for mobile Internet services, most telecom carriers are investing heavily in spectrum upgrades. TELUS is no exception to this trend and has been continuously acquiring spectrums to improve its 4G Long Term Evolution (LTE) network quality. (Read More: TELUS Buys $1.5B of AWS-3 Spectrum in Canada.)
5. Turkcell Iletisim, the largest integrated telecom operator in Turkey, is facing difficulties for quite some time now. Interestingly, the problem is not operation or management related issues but is primarily macroeconomic factors. Notably, the Turkish Lira had touched a record low value of 2.60 against the US Dollar in Mar. 5, 2015.
As of Dec 31, 2014, the company had 34.6 million subscribers in Turkey. Turkcell also operates in nine countries in Asia and Europe. Together, the company currently serves around 71.5 million subscribers. Depreciation of the Turkish Lira against the US Dollar is likely to negatively impact the company’s foreign exchange gains. (Read More: Turkcell Challenges: Falling Lira, Politics.)
Price Performance
The following table shows the price movement of major telecom players over the past week and the last six months.
Over the last five trading sessions, all major telecom stocks lost value. Vodafone Group PLC (NASDAQ:VOD) depreciated the most followed by America Movil SAB de CV (NYSE:AMX). Meanwhile, over the last six months, the price performance of key telecom stocks was also predominantly negative. Although DISH Network Corp (NASDAQ:DISH). gained a considerable 10.45%, Sprint (NYSE:S) and America Movil lost 23.14% and 22.61% respectively, over the same time frame.
What’s Next in the Telecom Sector?
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. Therefore, we expect stocks to trade in line with the broader market movement.