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Zacks Industry Outlook Highlights: Verizon Communications, AT&T, Sprint and T-Mobile US

For Immediate Release

Chicago, IL –July 31, 2017 – Today, Zacks Equity Research discusses the Industry: Telecom, Part 3, including Verizon Communications Inc. (NYSE:VZ Free Report), AT&T Inc. (NYSE:T Free Report), Sprint Corp. (NYSE:S Free Report) and T-Mobile US Inc. (NASDAQ:TMUS Free Report).  

Industry: Telecom, Part 3

Link: https://www.zacks.com/commentary/123317/us-telecom-price-competition-to-intensify

The U.S. telecom market continues to witness intense pricing competition as success depends largely on technical superiority, quality of services and scalability. In addition, President Trump’s presidential tenure may negatively impact the U.S. telecom industry owing to his unpredictable nature and proposed anti-trade policies.

Unlimited Data Plan War

Wireless consumers pay millions extra in the form of added surcharges, taxes, monthly fees and carrier price hikes every year. The practice seems to have peaked and carriers are still looking for ways to collect more from their customers. Several consumer groups have criticized extra fees because these are easily overlooked and lead to higher-than-advertised price payments.

Verizon Communications Inc.(NYSE:VZFree Report) offers a single line of unlimited data for $80 a month with a second line for $60. AT&T Inc. (NYSE:TFree Report) unlimited plan starts at $100 a month, but it doesn’t include monthly taxes and fees, consequently raising the final cost. Notably, Verizon and AT&T do not include those fees in their advertised rates, either.

Sprint Corp.(NYSE:SFree Report) also upgraded its unlimited data plan. Now new customers can buy a single line on Sprint’s unlimited plan for $50 and two to five lines for $90 per month. Any extra line will cost $40 each. These rates will remain effective til Mar 31, 2018. After that, the company will raise the prices back to normal rates, per which, one line will cost $60 a month, two lines will cost $100 and every line beyond that will cost an additional $30.

T-Mobile US Inc.(NASDAQ:TMUSFree Report), the third largest national wireless operator in the U.S., recently raised the price of its best unlimited data plan, One Plus. Management raised the price from $5 to $10 a month in addition to the monthly fee it charges for its basic T-Mobile One plan. A single line of T-Mobile One Plus now costs $80 a month, while four lines costs a total of $200. All other additional features will remain the same.

Except AT&T, each stock currently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Distressing Time for U.S. Pay-TV Industry - Customer Churn Soars

Research firm, Dataxis reported that the U.S. pay-TV subscriber base declined by 612,000 to 100.3 million in the first quarter of 2017. This indicates a fall of 0.61% year over year. The cable TV subscriber base remains almost flat at 58.4 million. However, the satellite TV customer base was down 1.32% to 33.2 million and the IPTV customer base declined 3.1% to 6.3 million.

On the other hand, low-cost OTT (over the top) pay-TV service grew 6% to 2.4 million subscribers. Research firm SNL Kagan predicted that the U.S. pay-TV industry (consisting of cable, satellite and IPTV operators) will lose approximately 10.8 million customers by 2021. Total pay-TV subscribers will be around 82.3 million at that time, which will be 20% less than the industry’s historical high level.

In terms of customer retention, legacy pay-TV operators are yet to cope with the onslaught of low-cost online video streaming service providers. In the last 10 years, the internal dynamics of the pay-TV market have gradually shifted from legacy pay-TV offerings to low-cost OTT service providers. The strong presence of online video streaming providers is posing a significant threat to the existing pay-TV business model. Video offering, which represented the core business function of cable TV operators, seems to be slipping out of their hands fast.

Will Geographical Expansion Stop?

Cutting across barriers has become common for telecom players. The objective is to offer better service and customer convenience. However, President Trump has already threatened to terminate the previous Obama administration's efforts to normalize US-Cuba relations. All the four leading U.S, wireless operators namely, AT&T, Sprint, Verizon and T-Mobile UShave established business links with Cuba's Empresa de Telecomunicaciones de Cuba SA.

Moreover, Trump’s win might deal a major blow to Mexico as he believes that the nation has taken away jobs from Americans. He also plans a wall along the U.S.-Mexico border to curb illegal immigration. AT&T has strong business interests in Mexico.

Weaknesses

In general, the beleaguered telecommunications companies have high debt levels and large financial leverage ratios. Moreover, they are often unable to cope with recent market trends. Other risks that pose threats are as follows:

    •    Potential Business Slowdown: Sales fluctuations of carriers are expected to continue to weigh on capital spending decisions -- a major problem faced by equipment vendors. The companies are expected to retain focus on improving balance sheets, financial discipline and free cash-flow generation.

     •    Product Overlapping: We may see more product sharing deals between telecom, cable TV and satellite TV operators as each of these players are vying to grab a sizeable share in each other’s territory. Even pay-TV services, offerings to business enterprises, mobile backhaul and metro-Ethernet segments may observe more convergence. Mobile phone makers are now progressively offering tablets and chipset manufacturers are providing chips for personal computers as well as mobile devices – thus frequently interchanging their areas of operations.


    •    Intensified Competition: Technological upgrades and breakthroughs have resulted in cutthroat price competition. Product life-cycle and upgrade-cycle have been reduced drastically as several firms are coming up with new products and services within a short span of time. Increasing competition is compelling players to offer heterogeneous and bundled services to retain their position in the space.

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 Zacks Industry Rank

Within the Zacks Industry classification, health insurers are broadly grouped in the Medical sector (one of the 16 Zacks sectors).

We rank 265 industries into 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. We put our X industries into two groups: the top half (industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).

Over the last 10 years, using a one-week rebalance, the top half beat the bottom half by more than twice as much. The Zacks Industry Rank is #177 (bottom 34%). The ranking is available on the Zacks Industry Rank page.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.


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AT&T Inc. (T): Free Stock Analysis Report
 
Sprint Corporation (S): Free Stock Analysis Report
 
Verizon Communications Inc. (VZ): Free Stock Analysis Report
 
T-Mobile US, Inc. (TMUS): Free Stock Analysis Report
 
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