Here's How 2019 Unfolded For The Telecommunications Sector

Charting record highs, 2019 has been an outstanding year for the U.S. equity markets with a year-end rally propelling the indices to historic levels and within touching distance of being the best year in more than two decades. As the curtains roll down on an eventful 2019, let us delve a little deep into the overall performance of the telecom sector in the outgoing year.

2019: The Year in Perspective

Tariff War

The telecom stocks witnessed a roller-coaster ride in 2019 as President Trump flip-flopped on the trade war. The industry faced a gamut of trade restrictions and tariffs that affected its supply-chain mechanism and dented profitability. The Sino-U.S. tariff war virtually led to intense technology warfare between the two superpowers of the global economy, forcing the industry to get polarized into two distinct halves, bringing an element of uncertainty within the rank and files of the telecom sector. After maintaining his usual tirade against the unfair trade practices by the China, Trump appeared intent to strike a deal on numerous occasions, only to backtrack. The on-again-off-again trade war skirmishes sent confusing signals to the market that bore the brunt of the geopolitical crisis as bilateral trade suffered.

The Trump administration fired a double-barrel gun as the government extended the deadline for a sweeping ban on trade with Chinese telecom equipment manufacturer Huawei by another 90 days in November, allowing domestic firms and rural carriers to utilize the window to purchase replacement parts and software. This marked the third such instance when the reprieve was extended since the U.S. Commerce Department added Huawei to the ‘Entity List’ in May, citing national security concerns. The FCC also formalized a key proposal issued last year and prohibited the use of federal subsidies by small and rural carriers to buy equipment from Huawei and ZTE (HK:0763). At the same time, the government reportedly approved a quarter of nearly 300 license applications by U.S. firms to trade with the beleaguered telecom firm, allowing trade only on those items that were deemed to be safe and do not deal with data-intensive applications like cellular-tower hardware, routers and switches.

5G Race

The bone of contention stemmed from an innate desire to claim dominance in cutting-edge technologies and the next generation of wireless services as the industry remained on the cusp of 5G boom. Although both the United States and China were on equal footing for 5G readiness by mid-2019, the communist nation seemed to be inching ahead in the later stages of the year with large-scale deployment and commercialization. The FCC has started the third round of 5G spectrum auction on Dec 10 to make more spectrum available for super-fast 5G connectivity. The latest auction will be the largest with 3,400-megahertz spectrum up for grabs in three different spectrum bands — 37 GHz, 39 GHz, and 47 GHz. The step seems to be the call of the hour as steady investments are required to upgrade the networks with state-of-the-art technology for faster 5G deployment.

Several U.S. firms are gradually picking up pace as 5G race intensifies. Reportedly offering the fastest network in the United States in terms of both download and upload speeds, T-Mobile US (NASDAQ:TMUS), Inc. (NYSE:S) has become the first telecom carrier to activate nationwide 5G network, covering nearly 200 million Americans in more than 5,000 cities and towns. Its rival carrier Verizon Communications Inc. (NYSE:VZ) has already deployed 5G Ultra Wideband mobility service in more than 30 cities for high speed, low latency and expanded coverage. AT&T Inc. (NYSE:T) has introduced 5G networks built on its low-band 850MHz spectrum technology in 19 cities and is planning to add few more in the near future.

Industry Consolidation

A historic approval for industry consolidation further reshaped the sector dynamics in 2019, with the U.S. Department of Justice finally giving green signal to the merger of T-Mobile with Sprint Corp. (NYSE:S) – the third and the fourth-largest wireless companies in the country. Allaying antitrust concerns, the authorities observed that the merger would create an entity that would thwart the dominance of China in the 5G market and benefit the larger community with superior rural broadband coverage. In addition, a $5-billion deal with Dish Network for divesting Sprint’s prepaid wireless businesses, including Boost Mobile, and some of its spectrum cleared the decks for the formation of a new entity. The agreement established Dish as a disruptive force in the wireless industry, redefining the broader industry metrics.

Sweeping Reforms

In a landmark decision, the FCC voted unanimously in favor of splitting the spectrum block earmarked for auto safety for use by wireless devices to meet the exponential growth of bandwidth due to increased 5G deployment. The FCC plan seeks to allocate 45 MHz for Wi-Fi use and set aside the remaining 30 MHz for auto safety. The allocation is based on the perceived importance of Wi-Fi, which is likely to double by 2023 to more than $1 trillion, according to FCC Chairman Ajit Pai. Out of the 30 MHz spectrum band assigned for auto safety, 20 MHz will be allotted for a newer version of vehicle-to-everything communications or V2X technology, known as cellular vehicle-to-everything or C-V2X, and the remainder for the legacy DSRC safety system. A lot of pioneering work is being done on this front and the industry is betting big on Qualcomm Incorporated’s (NASDAQ:QCOM) 9150 C-V2X Chipset, which empowers automakers and roadside infrastructure providers with improved V2X capabilities for safety and autonomous driving.

The Senate passed the anti-robocall bill, paving the way for the President to formally sign it into a law. Dubbed the TRACED Act, for Telephone Robocall Abuse Criminal Enforcement and Deterrence, the bill mandates telecom firms to offer free call-blocking apps to thwart spam calls. The Senate also passed the Broadband Deployment Accuracy and Technological Availability (DATA) Act that enables the FCC to collect more precise data from wired, fixed wireless, and satellite broadband providers to get a better understanding of the nationwide broadband coverage. This is likely to bridge the urban-rural digital divide and foster the development of high-speed Internet connectivity across the country.

The Endgame

The telecom stocks scripted a remarkable turnaround and witnessed an upward trajectory toward the end of the year, courtesy the last-minute “Phase One” trade deal between the United States and China. Although the two sides are yet to sign the agreement (which is likely to take place in January 2020), the partial trade accord represents a major breakthrough in the 21-month standoff between the world's two largest economies. The trade agreement offered a much-needed respite to the beleaguered industry just before the holiday season, weeding off sector uncertainty and probable tariffs on popular consumer goods and telecom equipment. The trade truce buoyed investor sentiments and propelled the industry to mirror broader equity market performance.

All's Well That Ends Well? Maybe, maybe not. While the jury is out to deliberate on it, let us hope that the telecom sector maintains the healthy growth momentum next year as well.

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