U.S. telecom stocks declined on average over the past week as increasing coronavirus cases raised fresh lockdown fears across Europe. Higher infection rates across the country fueled speculations about the potency of the vaccines and the need for booster doses, with more Americans heading indoors as temperatures dropped. Lingering concerns regarding the potential interference of the C-Band spectrum with aviation safety standards further forced the telecom industry to tread with caution. However, the downtrend was partially offset by a modest upswing led by a strong rally by some blue-chip stocks and optimism surrounding the nomination of Federal Reserve chief Jerome Powell for a second term.
Two leading U.S. House Democrats urged the FCC to consider the gravity of the issue raised by the Federal Aviation Administration about aviation safety being likely compromised by the planned use of spectrum for 5G wireless communications. The lawmakers sought an immediate restraining order from the FCC for the deployment of the C-Band for wireless use until a thorough risk assessment is conducted. Although the FCC did not comment, a coalition of industry trade groups pointed out that further delay in the deployment of 5G technology would likely hamper the country’s economic growth.
Notable company-specific news that grabbed the spotlight over the past week includes Verizon Communications Inc.’s VZ FCC approval for TracFone acquisition and Ericsson’s ERIC buyout deal for Vonage. Also, Nokia Corporation NOK upgraded its 5G facility, Knowles Corporation KN introduced a two-way balanced armature receiver in hearing aids and Viasat, Inc.’s VSAT mobile network became operational in China.
Meanwhile, President Biden continued his hard stance against Beijing and invited Taiwan to the virtual Summit for Democracy, further aggravating the bilateral relations. This followed the signing of the Secure Equipment Act that empowers the FCC to prevent the use of any telecommunications equipment manufactured by China-backed entities in the domestic markets. The FCC also continued to oppose an appeal by China Telecom in the federal court against an earlier directive to bar it from operating in the United States over national security concerns.
Recap of the Week’s Most Important Stories
1. Verizon has secured approval from the FCC for the acquisition of TracFone Wireless, Inc., paving the way for the likely closure of the deal inked in September 2020 by this week. The buyout of this subsidiary of Mexico’s largest telecommunications firm, América Móvil, S.A.B. de C.V., is expected to offer enhanced access to Verizon’s wireless network and a suite of mobility products and services to its huge customer base.
Following the merger, Verizon plans to bring its 4G LTE, 5G networks and other innovative technologies to TracFone’s customers. The transaction aligns with Verizon’s growth-oriented Network as a Service strategy and more U.S. consumers will have access to its wireless plans with better experiences.
2. Ericsson has inked a deal to acquire Vonage Holdings Corp. for $21 per share or almost $6.2 billion in cash. Vonage’s presence in the Communication Platform as a Service segment will allow Ericsson to access a substantial and high growth segment. Ericsson’s leadership in 5G technology will boost the developing space for open network application programming interfaces.
The transaction is expected to deliver near-term revenue synergy opportunities. Ericsson also expects to achieve some cost efficiencies following the completion of the transaction. On completion, Vonage will become a wholly owned subsidiary of Ericsson and will continue to operate under its current name.
3. Nokia has announced that it has upgraded its 5G testing lab located in Guadalajara, Mexico, to support testing across new uses cases. The state-of-the-art facility will enable the testing of new 5G products and support growing sales and supply chain operations in the region.
The lab provides services to both Latin America and North America. Further, Nokia’s soon-to-come 5G deployments in Mexico and Latin America will be supported by its own operations. It will also benefit from the free trade agreement between the United States, Mexico and Canada.
4. Knowles recently augmented its portfolio by introducing a new two-way balanced armature receiver in hearing aids to boost the audio capabilities of hearing-impaired persons. The product was developed in collaboration with Lucid Hearing, a pioneering company delivering hearing aid solutions to enable people of all ages to hear better with natural sound quality and reduced distortion.
The new product from Knowles is likely to enable the users to experience audiophile-quality music performance. The Westone Audio High Fidelity DWT is a premium hearing aid with a Receiver in Canal that enhances sound quality for music-listening for the hearing impaired. The balanced armature receiver from Knowles offers discreet size for a comfortable fit, long battery life for all-day wear and unmatched sound clarity for optimal vocal and full-spectrum sound.
5. Viasat has announced that its mmobility network has become operational in China. This, in turn, is likely to enable the company to offer in-flight connectivity solutions in domestic and international airlines operating in and out of the communist nation’s airspace by leveraging the Ka-band ChinaSat-16 satellite system.
Viasat deployed the network in collaboration with China Satellite Communications, Co. Ltd., which provided it regional access to the country’s highly regulated satellite communication services. The improved IFC services will offer enhanced Internet capabilities with best-in-class in-flight entertainment options to entice customers and likely contribute to the uptrend in leisure air travel demand.
The following table shows the price movement of some of the major telecom stocks over the past week and six months.
Image Source: Zacks Investment Research
In the past five trading days, Motorola has been the best performer, with its stock gaining 3.5% while Bandwidth has declined the most, with its stock falling 4.3%.
Over the past six months, Arista has been the best performer, with its stock appreciating 33.8% while Bandwidth has declined the most, with its stock falling 63%.
Over the past six months, the Zacks Telecommunications Services industry has declined 12.1% while the S&P 500 has rallied 12.1%.
Image Source: Zacks Investment Research
What’s Next in the Telecom Space?
In addition to 5G deployments and product launches, all eyes will remain glued to how the administration implements key policy changes to safeguard the interests of the industry and address the bottlenecks to spur growth.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report