Telecom Stock Roundup: Verizon Updates 5G Specifications, AT&T Wins Data Throttling Suit

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Last week has been quite eventful for the telecom industry despite a mixed run on the bourse. Several significant developments dominated the headlines with Verizon Communications Inc. VZ at the forefront. The U.S. telecom behemoth recently completed a major upgrade of its 4G LTE networks to LTE-Advanced technology covering 461 cities in the U.S. The LTE-Advanced network will raise the data packet transmission speed by more than 50%.

Verizon also unveiled the second round of specifications for the upcoming 5G wireless network. Last month, the company achieved a milestone by becoming the first company in the world to issue an initial radio specification for the 5G wireless network. The second round of update was primarily on the mechanics of connecting to the network.

On Aug 29, U.S. telecom giant AT&T Inc. T won a major legal battle as the Ninth Circuit Court of Appeals in California dismissed a data throttling charge issued by the Federal Trade Commission FTC. Data throttling is the blocking or slowing of data transmission once customers hit a certain usage limit in a month. In Oct 2014, the FTC raised questions over AT&T's data throttling practices, accusing the telecom carrier of deceiving its unlimited plan customers.

United States Cellular Corp. USM, the fifth-largest regional wireless service provider, recently launched new Shared Connect plans which offer more data, larger allotments and new tools to track data usage. The plan is being offered on its high-quality network that keeps customers connected irrespective of the area the customer is in. Moreover, Comcast Corp. CMCSA received regulatory clearance from the Federal Communications Commission (FCC) pertaining to the discrimination and carriage pricing charges leveled by Liberman Broadcasting Inc., the owner of Estrella TV in Apr 2016.

Meanwhile, research firm SNL Kagan recently reported that the second quarter of 2016 witnessed the highest quarterly subscriber loss in the history of the U.S. pay-TV industry. 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. SNL Kagan has estimated that in the last reported quarter, the pay-TV industry lost approximately 812,000 customers.

According to a recent report by research firm Strategy Analytics, it is expected that 5G mobile handsets will be available for sale in the market by 2020, following a broader rollout of the technology. Though the first trial handsets are expected in 2018, they are likely to face problems such as a short battery life, no 4G handover or unstable connectivity. However, these problems will be taken care of before its actual launch in 2020. The first commercial 5G handsets are expected to be highly expensive.

Strategy Analytics' forecast has revealed that the number of worldwide 5G connections will touch the 690 million mark by 2025.Major U.S. telecom behemoths – Verizon, AT&T, Sprint Corp. S and T-Mobile US Inc. TMUS – are all forging ahead with their 5G plans and aim to launch 5G networks in the upcoming years.

Outside the U.S., leading Canadian telephone operator BCE Inc.'s BCE subsidiary, Bell Canada recently launched Home Hub 3000, which is likely to be one of the most powerful home WiFi services in Canada. This service is supposedly the world's first fully wireless IPTV (Internet Protocol television) service with Wireless 4K Whole Home PVR from Fibe TV.

In a separate development, Mexican telecom regulator, the Federal Telecommunications Institute IFT, announced that the country's telecom sector has witnessed 8.4% year-over-year growth in revenues in the second quarter of 2016. This rate of growth is highest among all the other sectors of the economy. Remarkably, the telecom sector's growth rate is more than three times higher than the 2.5% overall growth rate of Mexico's GDP in the same time frame. In second-quarter 2016, the broader telecom sector of Mexico generated total revenue of around MXN 485 billion (over $26.81 billion).

Read the last Telecom Stock Roundup for Aug 25, 2016.

Recap of the Week's Most Important Stories

1.    Verizon claims that its 5G network will provide a download speed of 1 Gbps (gigabit per second), which is 200 times the throughput of the currently available standard 4G LTE network. The latency period of data delivery will be in single milliseconds. Although several industry researchers have predicted that a full-fledged 5G network deployment will not commence until 2020, Verizon anticipates some level of commercial deployment in 2017. (Read more: Verizon Updates 5G Specifications, Launch Proposed in 2017.)

2.    LTE-Advanced networks incorporate several technological advancements like Coordinated Multi-Point (CoMP), Self-Optimizing Networks SON, small cell enhancements, Enhanced Inter-Cell Interference Coordination (eICIC) and advanced Multi-Input Multi-Output (MIMO) antenna. Verizon has used MIMO technology and is looking to deploy its advanced version in the future. According to a projection by the Global Mobile Suppliers Association, 28% of LTE network operators worldwide have launched LTE Advanced networks. (Read more: Verizon Launches Nationwide LTE-Advanced Networks.)

3.    On Aug 29, the Ninth Circuit Court of Appeals in California reversed a lower court's denial of AT&T's motion to dismiss the throttling lawsuit. The appeals court identified AT&T as a common carrier. Due to this, the service provider cannot be held liable for the violations of rules that the FTC brought in its case. Notably, the FCC slapped a fine of $100 million for similar reason in Jun 2015.   (Read more: AT&T Wins Legal Battle over Data Throttling with FTC.)

4.    Mexico has been witnessing massive investments in its telecom sector. In Jun 2016, the country's Secretariat of Communications and Transport (SCT) declared that a total of more than $6.5 billion has been invested over the last three years. In addition, around $13.5 billion has been invested recently in the telecom sector. Moreover, the upcoming nationwide shared broadband network will attract around $7 billion worth of investments.   (Read more: Mexico's Telecommunications Industry Flourishing.)

5.    As per research firm Strategy Analytics, the commercial 5G handsets for 2020 will be first available in South Korea and Japan. The next round of launch will be in the U.S., the UK, Sweden and the UAE in 2021 with tens of millions of 5G handsets to be sold by 2022. By 2025, the sales figure is expected to exceed 300 million. The North American and European operators are focused on the Internet of Things (IoT) platform. (Read more: Will 5G Handsets Make Their Way into the Market by 2020?)

Price Performance

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

Company

Last Week

Last 6 Months

VZ

-0.38%

1.69%

T

0.02%

9.33%

S

2.32%

78.10%

TMUS

0.24%

19.90%

VOD

-2.09%

-2.23%

CHL

-2.54%

11.07%

AMX

1.52%

-14.86%

CMCSA

-0.61%

10.20%

DISH

1.29%

3.06%

Over the last five trading sessions, share price movement of the major telecom stocks witnessed a mixed trend. China Mobile (2.54%) and Vodafone (2.09%) suffered most in the same time period. On the other hand, Sprint (2.32%) gained considerably. However, over the last six months, the price performance of most telecom stocks was predominantly positive. Among the stocks that gained considerably were Sprint (78.10%), T-Mobile US (19.90%), China Mobile (11.07%), and Comcast (10.20%). In contrast, America Movil lost 14.86% in the same time frame.

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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.

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