Telecom Stock Roundup: Big Cable MSOs To Hike Price In 2018, FCC To Auction CAFII Subsidy

The U.S. telecom industry did not witness much activity last week. Nevertheless, a few developments are worth taking note of.

Per a recent FierceCable report, cable and satellite television companies are gearing up to hike prices of their packages. Major pay-TV operators like Comcast Corp. (NASDAQ:CMCSA) , DISH Network Corp. (NASDAQ:DISH) and Cox Communications Inc. have notified their customers about the increase in programming package rates, effective 2018. U.S. telecom behemoth, AT&T Inc. (NYSE:T) has also announced monthly price increase for it’s over the top (OTT) online streaming service, DirecTV Now.

Leading wireline and wireless service providers that are interested in extending their reach in rural United States with high-speed broadband services will get a chance to bid for an additional $2 billion in government’s Connect America Fund II (CAFII) subsidy. In 2015, a number of large wireline operators including AT&T, CenturyLink Inc. (NYSE:T) , Frontier Communications Corp. (NYSE:T) and Windstream Holdings Inc. (NASDAQ:WIN) accepted $9 billion over a period of six years from Phase II of the Connect America Fund to expand broadband in their rural service areas.

Moreover, AT&T has requested for a Special Temporary Authority from the Federal Communications Commission (FCC) to conduct 5G tests on the 3.5 GHz frequency band. The company plans to conduct tests for one month, commencing Feb 1, 2018, using L. M. Ericsson’s (NASDAQ:ERIC) equipment inside a closed building in Washington, D.C. AT&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

U.S. telecom behemoth Verizon Communications Inc. (NYSE:VZ) has launched a new video service, FiOS Current TV, targeting the SMB segment, especially health clinics, consulting firms, restaurants, health clubs, bars, and cafes. Verizon offers two categories of services to its SMB customers, $40 per month without a contract and $30 per month with a two-year agreement. Additionally, the company is offering Current TV at $25 per month for SMB customers ordering a triple-play bundle with a two-year agreement.

Meanwhile, Altice USA Inc. (NYSE:T) and TiVo Corp. (NYSE:T) have signed an extended six-year patent agreement. The deal extends Altice USA’s license to TiVo’s patent portfolios and will broadcast new features across the newly formed platform — Altice One. Altice USA is one of the largest broadband communications and video services providers, while TiVo is a global leader in entertainment technology and audience insights.

Outside the United States, leading European and Latin American cable MSO (multi service operator) Liberty Global plc (NYSE:T) was in the headline for a couple of news. In a move to enhance shareholders' wealth, the board of directors approved a new share repurchase program. The new authorization permits Liberty Global to buy back Liberty Global Group Class A ordinary shares, Class C ordinary shares, or a combination of Class A and Class C ordinary shares, up to $2 billion. Additionally, the company has inked a deal to sell its Austrian cable business, UPC Austria to T-Mobile Austria for 1.9 billion euros ($2.2 billion).

Read the last Telecom Stock Roundup for Dec 20, 2017.

Recap of the Week’s Most Important Stories

1. Pay-TV operators have cited various reasons for price increase. Increasing cost of programming content continues to be one of the main reasons of video rates increase. Continuous investment in network, products and services also add to the company’s budget. The move comes at a time when cable companies are reporting video subscriber losses to the online video streaming service providers. (Read more: Will a Price Hike in New Year Benefit Cable Companies?)

2. In 2015, the Federal Communications Commission had (FCC) offered more than $10 billion over the next six years in CAFII subsidy to deploy high-speed Internet connections through rural United States. In May 2016, the FCC had approved a reverse auction to provide an additional $2 billion in funds to rural broadband providers through its CAF II program in an effort to accelerate growth. (Read more: FCC's $2B CAF Auction to Strengthen Network in Rural U.S.)

3. AT&T is awaiting final guidelines from the FCC. The FCC is considering new rules for the 3.5 GHz Citizens Broadband Radio Service (CBRS) band. Earlier, major U.S. telecom operators commercialized the 3.5 GHz unlicensed wireless spectrum. Notably, the 3.5 GHz radio frequency is being considered in many parts of the world for the upcoming 5G wireless standard, raising scope of providing spectrum globally. (Read more: AT&T Seeks FCC Permission for 5G Trial Using 3.5GHz)

4. Verizon offers fiber-optic based FiOS TV services to its residential customers. This service is similar to that of cable TV operator’s traditional video offerings. Currently, the company is on the verge of carrying out test trial runs for its IPTV upgrade. In 2015, the company launched go90, a YouTube-like streaming-video service for teenagers. However, the company is planning to merge go90 into its digital platform, Oath. (Read more: Verizon Sweetens SMB Services With FiOS Current TV)

5. Altice USA will deploy TiVo's Personalized Content Discovery platform to feature programs across Altice One platform. The Personalized Content Discovery platform combines TiVo’s personalized search and recommendations with voice search functionality. Altice USA will continue to use TiVo’s i-Guide interactive program guide and Gateway DVR solution that provide over-the-top (OTT) content. (Read more: Altice USA Inks Extended Patent Agreement with TiVo)

Price Performance

The following table shows the price movement of the major telecom stocks in both the last week and last six months.

In the last five trading sessions, share price movement of most of the major telecom stocks was positive. Charter Communications (NASDAQ:CHTR) and Sprint gained significantly in the same time frame. Likewise, price performances of most of the major telecom stocks were positive in the last six months. Sprint and DISH Network suffered major reverses in the stock price, while Verizon gained attractively in the same time period.

What’s Next in the Telecom Space?

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. Consequently, we expect stocks to trade in line with the broader market.

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