Telecom Stock Roundup: U.S. National Wireless Carriers Form Alliance On Mobile Security

Although most major telecom stocks lost value in the last week, the sector witnessed a number of important events.

Securing mobile devices has become important in recent years as the number of devices in operation and their purpose have expanded drastically. Despite such high-level securities and safe-guarding options, hackers can engineer passwords from users, leaving consumers and enterprises vulnerable to identity theft, bank fraud and fraudulent purchases and data theft.

To address such issues, four major wireless carriers – Verizon Communications Inc. (NYSE:VZ) , AT&T Inc. (NYSE:T) , T-Mobile US Inc. (NYSE:T) and Sprint Corp. (NYSE:S) – are teaming up to provide a new method of mobile security solution through the creation of Mobile Authentication Taskforce. This mobile authentication solution will be offered to consumers and enterprises in 2018.

Two important developments have taken place in the merger and acquisition front. Per a recent report by Forbes, U.S. mobile chipset giant, Qualcomm Inc.’s (NASDAQ:QCOM) proposed acquisition of Netherlands-based mobile chipset giant NXP Semiconductors NV (NASDAQ:NXPI) is facing a few problems. Per the report, hedge fund Elliott Management Corp. and two other large shareholders of NXP have approached the company to renegotiate the terms of the deal, which they consider grossly undervalued. Moreover, in June 2017, the telecom regulatory body of the European Union, the European Commission (EC), launched a thorough investigation into the proposed acquisition.

Meanwhile, CenturyLink Inc. (NYSE:T) has postponed the closing of the Level 3 Communications Inc. (NYSE:T) acquisition till the end of October. This is because the much-hyped merger between CenturyLink and Level 3 Communications is still awaiting approvals from the State of California, the Department of Justice and the Federal Communications Commission.

Two important developments have also taken place in the new plan offering on the part of wireless operators. T-Mobile US is making its unlimited postpaid wireless service, T-Mobile ONE, more attractive with the inclusion of services from online video streaming service provider, Netflix Inc. (NASDAQ:NFLX) .

On the other hand, AT&T is extending its free HBO offer to its new and existing wireless customers on its Unlimited Choice plan. The company is targeting customers who purchase a combo of wireless and video services. While doing so, AT&T plans to not only put a check on the postpaid churn rates but also plans to boost revenues from its wireless business.

Broadband communications and video services provider, Altice USA Inc. (NYSE:T) and business software & services provider, Amdocs Ltd. (NASDAQ:DOX) recently announced the extension of their partnership. The companies have inked a multi-year deal to expand their key business and operational support systems.

Outside the United States., Mexican telecom behemoth America Movil SAB (NYSE:AMX) recently received regulatory approval from Argentina's National Communications Agency (Enacom) to enter into the pay-TV market of that country. Notably, the company has already established both wireless and wireline operators in Argentina. America Movil carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Read the last Telecom Stock Roundup for Sep 07, 2017.

Recap of the Week’s Most Important Stories

1. Wireless operators have decided to combine their respective technologies and resources to develop an advanced, mobile authentication solution. This solution is expected to help reduce mobile identity risks by analyzing data and activity patterns on a mobile network using network-based device authentication, geo-location and SIM card recognition. They intend to use this information to predict the identity of the user. In simpler words, they are aiming to improve the already existing two-factor authentication (2FA) security with some add-ons. (Read more: US Wireless Carriers Unite on Mobile Security Solutions)

2. NXP Semiconductors is the largest manufacturer of high-performance, mixed-signal mobile chipsets with 14% market share. The company has a strong clientele serving more than 25,000 customers through its direct sales channel and global network of distribution channel partners. The combined entity of Qualcomm and NXP Semiconductors is expected to generate annual revenues of more than $30 billion. (Read more: Is Qualcomm's Merger With NXP Semiconductors Facing Trouble?)

3. In November 2016, CenturyLink entered into a definitive agreement to acquire Level 3 Communications in a cash and stock transaction. The combined entity is likely to generate $975 million of annual cash synergies. If the proposed merger finally materializes, it will increase CenturyLink's network by 200,000 route miles of fiber including 64,000 route miles in 350 metropolitan areas and 33,000 subsea route miles connecting multiple continents. (Read more: CenturyLink Defers Level 3 Communications Acquisition)

4. For customers that already have Netflix accounts, T-Mobile US has promised to cover the cost of subscription — a deal that’s worth $120 every year. The promotion is part of what the company calls its “Un-carrier” strategy, which is an effort to challenge mobile carrier conventions. The latest offering is one of the several low-priced service plans and promotional moves which T-Mobile US has undertaken to lure more subscribers from competitors like AT&T and Verizon. (Read more: T-Mobile US' Unlimited Plan to Offer Free Netflix)

5. Post-paid churn is one of the most important metrics in the wireless industry. It denotes the percentage of subscribers in a given time frame that cease to use the company's services for one reason or another. Post-paid subscribers are the largest revenue segment for major domestic wireless telecom companies. They have a significant lifetime value for these companies. The lower the churn rate, the better the outlook is for the company. (Read more: AT&T's Bundled Wireless Video Services to Draw More Users)

Price Performance

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

In the last five trading sessions, share price movement of major telecom stocks was predominantly negative. Charter Communications (NASDAQ:CHTR) (4.96%), DISH Network (NASDAQ:DISH) (4.34%), T-Mobile US (3.41%) and Sprint (3.13%) declined significantly. Likewise, price performances of almost all major telecom stocks were negative in the last six months. Among the stocks that lost substantially are DISH Network (15.95%), AT&T (14.72%) and Sprint (10.51%) while America Movil (39.64%) and Charter Communications (15.56%) gained significantly in the same time frame.

What’s Next in the Telecom Space?

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. Consequently, we expect stocks to trade in line with the broader market.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>