Telecom Stock Roundup: Verizon and AT&T Cuba Bound, DISH and Comcast Engage in Litigation

The past week witnessed several key developments within the telecom industry. President Barack Obama's decision to normalize U.S. diplomatic and economic relations with Cuba, which have been considerably strained since 1961, has started showing results.

Verizon Partner Solutions, a division of U.S. telecom behemoth Verizon Communications Inc. VZ entered into an agreement with Cuba's state-run telecommunications company Empresa de Telecomunicaciones de Cuba (ETECSA) to offer direct roaming mobile interconnection services between the two countries.

According to a recent report by Reuters, AT&T Inc. T is also looking for a mobile roaming agreement with Cuba's ETECSA. Citing a source familiar with AT&T's negotiations, Reuters reported that discussions are currently underway, and the agreement is yet to materialize. However, AT&T has declined to make any comments in this regard.

Further, as per a recent report by U.S. news outlet CTFN, Japan-based Softbank, the parent company of Sprint Corp. S, is now considering whether the national telecom carrier will participate in the upcoming 600 MHz low-band spectrum auction (popularly known as Incentive Auction) to be conducted by the U.S. telecom regulator Federal Communications Commission (FCC). The airwaves auction is scheduled to begin by Mar 29, 2016.

The latest tussle between DISH Network Corp. DISH and Comcast Corp. CMCSA-owned NBC Universal has taken a new turn with DISH filing suit for breach of contract against the latter. The lawsuit relates to NBC Universal's un-ethical communication to DISH's subscribers about an impending blackout. Per terms, such messages are allowed to be aired only within 72 hours before the expiration of the contract. However, DISH has alleged that NBC Universal communicated the same much ahead of the specified time.

According to a recent report by research firm IHS Infonetics, the LTE infrastructure market size has touched a record $13 billion in the fourth quarter of 2015, reflecting an improvement of 11% sequentially and 3% on a year-over-year basis. While the U.S. maintained its momentum in LTE network growth, the major impetus came from the emerging markets of China and India.

Meanwhile, cable MSOs (multi service operators) in the U.S. have enough reasons to smile. According to a recent report by Leichtman Research Group Inc. (LRG), cable MSOs have been able to retain their supremacy in the high-speed broadband (Internet) market, surpassing peers in the telecom industry.

Moreover,per research carried out by the Vertical Systems Group, a data analytical firm, cable MSOs like Time Warner Cable Inc. TWC and Comcast are giving telecom providers like AT&T, Verizon and Level 3 Communications Inc. LVLT a run for their money in the domestic Ethernet carrier market.

Outside the U.S., Mexico is set to establish the Telecommunications Investment Promotion Agency through a presidential decree. The agency will be responsible for the installation of the government's proposed shared network and provision of telecommunications services. The federal government will provide the resources to the agency that will be managed by a board of directors, headed by the Minister of Communications and Transport. The country's telecom regulator, Federal Telecommunications Institute IFT will regulate the agency.

Read the last Telecom Stock Roundup for Mar 10, 2016.

Recap of the Week's Most Important Stories

1.    AT&T is seeking to complete a deal in Cuba during President Barack Obama's upcoming visit to the country. Obama will be first U.S. president to visit Cuba after a long gap of 90 years.  The trip is officially slated for March 20-22, 2016. The ongoing truce between the U.S. and Cuba will allow American telecom carriers to export telecom equipment and products to the latter. The operators will also be able to establish the necessary infrastructure in Cuba to offer various telecom services including the Internet.    (Read More: AT&T Cuba Bound: Will More Telecom Firms Follow Suit?)

2.    In Sep 2015, Verizon became the first U.S. telecom operator to offer roaming wireless services in Cuba. The service charges $2.99 per minute for voice calls and $2.05 per Mb for data. The user must add Verizon's Pay-As-You-Go International Travel facility to his/her wireless handset to enjoy the roaming service while travelling in Cuba. We believe, in the long-term, Cuba may be a boon for U.S. telecom operators.    (Read More: Verizon to Offer Direct Roaming Wireless Services in Cuba.)

3.    The latest tussle between DISH Network and Comcast-owned NBC Universal has entered a new phase with DISH filing suit for breach of contract against the latter. Blackouts related to carriage pricing disagreements have now become a common occurrence within the pay-TV industry, with some deadlocks running into weeks or even months. NBC Universal carries some of the most popular content and programs in the U.S.   (Read More:DISH-NBC Universal Spat Flares Up, Parties Seek Arbitration.)

4.    Wireless network standards are continuously evolving around the globe to offer faster speed. Following significant deployment of 4G LTE networks, LTE-A (Long-Term Evolution Advanced) wireless networks are gradually finding solid foothold globally. For 2015, the worldwide macrocell wireless infrastructure market reached a value of $48 billion. Quarterly 4G LTE revenue is now $2 billion higher than the combined revenues of 2G and 3G networks.    (Read More:4G LTE Global Infrastructure Market Witnesses Strong Q4.)

5.    In Sep 2015, Sprint decided to skip the Incentive Auction citing that it has adequate spectrums to support its current and future customers with network coverage. Notably, Sprint had refrained from taking part in the AWS-3 auction which ended in Jan 2015. Prior to that, it had skipped the earlier version that was conducted in 2008 as well.We believe one of the reasons that led Sprint to take this decision was its weak financial condition. The company has been witnessing annual losses since 2007. (Read More: Will Sprint Participate in Upcoming US Incentive Auction?)

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, share price movement of most of the major telecom stocks was positive. However, Sprint slid a considerable 9.85% in the same time frame. On the other hand, over the last six months, the price performance of key telecom stocks has been predominantly negative. Sprint (23.88%), DISH Network (17.24%), America Movil (16.31%) and T-Mobile US (10.47%) have depreciated substantially over the six-month period. Meanwhile, AT&T (21.08%) and Verizon (18.12%) have been the major gainers.

What's Next in the Telecom Sector?

We do not foresee any significant change in the telecom industry or overall global economic factors that can potentially affect the industry in the coming week. Thereby, we expect stocks to trade in line with the broader market movement going ahead.

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