Telecom: Net Neutrality And China Mobil
Zacks Investment Research | Mar 27, 2015 06:02AM ET
In the last week, all major telecom stocks lost value. This was in line with the broader market (S&P 500) movement due to volatility in the U.S. dollar with respect to other major currencies and renewed fears of an interest rate hike by the Fed. Nevertheless, this did not keep the telecom sector from witnessing consequential activities.
Telecom trade group U.S. Telecom Association and Texas-based small telecom operator Alamo Broadband Inc. have sued the Federal Communications Commission (FCC) over net neutrality rules. Notably, U.S. Telecom Association has big telecom operators like Verizon Communications Inc (NYSE:VZ), AT&T Inc (NYSE:T) and CenturyLink Inc (NYSE:CTL) as its members. Comcast Corp (NASDAQ:CMCSA) has also expressed its intentions of taking legal action against the FCC.
In a separate development, T-Mobile US Inc (NYSE:TMUS) revealed new pricing plans to solidify its position within business customers segment.
Outside the U.S., the largest Chinese telecom operator China Mobile Ltd (NYSE:CHL) posted disappointing financial results in the fourth quarter of 2014. This marked the sixth successive quarter of net profit decline for the company. Meanwhile, Spanish telecom behemoth Telefonica (MADRID:TEF) S.A. entered into a definitive agreement with Hutchison Whampoa to divest its UK operations which runs under the O2 brand. (Read the last Telecom Stock Roundup for Mar 19, 2015 .).
Recap of the Week’s Most Important Stories
1. China Mobile, the largest wireless operator of China, reported disappointing financial results for the fourth quarter of 2014. Both total revenue and net earnings declined year over year. The dismal performance can be largely attributed to reasons like (1) slowing down of growth in the Chinese mobile market (2) higher expenses related to 4G TDD-LTE network rollout (3) increased customer retention costs (4) newly imposed value-added taxes and (5) intensifying competition from online streaming service providers. (Read More: China Mobile Q4 Earnings, Revenues Decline on Rising Costs .)
2. The FCC’s recent adoption of net neutrality laws is being questioned by industry trade group - U.S. Telecom Association and Texas-based small telecom operator Alamo Broadband Inc. While U.S. Telecom has filed a lawsuit in the U.S. Court of Appeals for the District of Columbia for a stay on the implementation of the new rules, Alamo Broadband has turned to the FCC in the U.S. Court of Appeals for the Fifth Circuit in New Orleans.
On Feb 26, the FCC endorsed net neutrality laws after a favorable voting margin of 3-2. The new laws will classify high-speed broadband (Internet) as a public utility under Title II of the 1934 Communications Act instead of section 706 of the 1996 Telecom Act. (Read More: FCC Sued by Telecom Groups Over Net Neutrality Rules .)
Get The News You Want
3. Telefonica has decided to divest its U.K. wireless operations, which run under the O2 brand, to Hutchison Whampoa. Notably, Hutchison currently operates under the 3 UK brand in the nation. At present, O2 serves over 22 million customers. Together the joint entity will have a consolidated subscriber base of more than 30 million, which will form the largest wireless operator in the U.K.
The total consideration of the deal stands at GBP 10.25 billion (approximately $15.25 billion). The deal is expected to be completed by Jun 2016, subject to customary regulatory approval. (Read More: Telefonica to Divest UK Operations to Hutchison .)
4. After transforming the way customers buy phones and wireless services, T-Mobile US – the fourth-largest national telecom company in the U.S. – now aims to revolutionize the business market with its Un-carrier 9.0 initiative. With this new plan, the carrier seeks to provide business customers with transparent pricing and additional new benefits for businesses of all sizes.
As part of this effort, T-Mobile has rolled out various promotions, and cellular and data plans for business customers. Particularly, with its new program Un-carrier for Business, the carrier is looking to specifically lure business customers by improving its network coverage and offering simplified plans. (Read More: T-Mobile Woos Business Customers with New Pricing Plans .)
5. According to a report in The Wall Street Journal, Comcast is in negotiation with HBO, Showtime and Sony Corp. to offer privileged managed services to the broadband traffic of the trio’s new over-the-top video programming on the Internet. Comcast is currently the largest cable MSO (multi service operator) in the U.S.
Incidentally, HBO, Showtime and Sony have approached other Internet service providers (ISPs) as well, demanding access to so-called fast lanes for their own Web TV services. (Read More: Will Comcast Managed Services Fix Web TV Content Woes? )
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 all major stocks was negative. Sprint Corp (NYSE:S) depreciated the most followed by DISH Network Corp (NASDAQ:DISH). However, over the last six months, the price performance of key telecom stocks was predominantly positive. Although Sprint and America Movil SAB de CV (NYSE:AMX) lost a considerable 25.51% and 16.44%, respectively, T-Mobile US gained 13.51% and DISH Network gained 11.49% over the same time frame.
What’s Next in the Telecom Sector?
In the coming week, beleaguered mobile handset developer BlackBerry Ltd. is slated to release its fourth quarter of fiscal 2015 financial results. The market will closely evaluate the results, looking for a possibility of a turnaround for the company, which once dominated the smartphone segment. With the release, investors are also likely to get more information about BlackBerry’s recent foray into the healthcare data analytics business and its newly introduced BES12 platform.
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