Zacks Industry Outlook Highlights: Verizon Communications, Comcast, Time Warner Cable and Vodafone
CHICAGO, Sept. 25, 2013 /PRNewswire/ -- Today, Zacks Equity Research discusses the U.S. Oil & Gas, including Verizon Communications Inc. (NYSE:VZ-Free Report), Comcast Corp. (NYSE:CMCSA-Free Report), Time Warner Cable Inc. (NYSE:TWC-Free Report) and Vodafone Group plc. (Nasdaq:VOD-Free Report)
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Industry: Telecom
Link: http://www.zacks.com/commentary/29113/Telecom-Industry-Stock-Outlook---Sept-2013
The telecommunications industry is identified as a major driver of global economic recovery. Unprecedented growth in high-speed mobile Internet traffic, in particular for wireless data and video, has transformed the industry into the most evolving, inventive and keenly contested space. In addition, the emergence of wireless broadband technology has created several new service areas, which offer huge growth potential.
Currently, the U.S. Telecommunications Industry is evolving around broad factors, including wireless gradually becoming the future of the telecom industry, and consequently spectrum is gaining popularity. High-speed fiber-based network is projected to expand more aggressively, especially for video/TV offerings.
In addition, consolidation within the industry will continue, mainly due to shortage of airwaves and for attaining economies of scale. Innovative products will be launched in areas of m-Commerce, virtualization and cloud-based technology, high-speed metro Ethernet, to name a few. Apart from these, there still remains ample scope for expansion in the U.S. According to the Federal Communications Commission (FCC), nearly a fifth of rural American households lack broadband access.
Wireless Is the Key
Despite the massive growth in fiber-to-the-home networks, we believe that wireless networks will boost growth in the telecom industry. Moreover, the sector is witnessing a fundamental change. The focus of the operators has shifted from voice calls to data and video. Any new network standard aims at faster data connectivity, quick video streaming with high resolution and rich multimedia applications.
Currently, the U.S. has approximately 300 million wireless subscribers. Mobile broadband has become the most lucrative source of revenue for the wireless operators. Massive growth of data buoyed by mounting smartphone adoption is the main reason for this favorable scenario. The U.S. currently accounts for 70% of LTE subscribers in the world. Apart from the terrestrial wireless network, the U.S. has an advanced satellite broadband network, mobile satellite radio system and extensive WiFi network.
Spectrum Crunch
The lack of public airwaves (spectrum) in the telecommunications industry creates a high barrier to entry. The U.S. telecom market is controlled by just four national players, as regional low-cost operators are not eligible to compete with large carriers.
Furthermore, it is not easy to establish a new telecom carrier since it will require government approval to transmit voice, data, and video on public airwaves. Spectrum licenses are limited and therefore quite expensive. Moreover, the deployment of network infrastructure requires significant capital expenditure, which very few entities can afford.
The U.S. wireless industry is facing acute spectrum shortage, resulting in data packet dropping at times. Carriers are concentrating on the effective utilization of existing spectrums along with acquiring more of it.
Mergers and Acquisitions to Continue
We believe that the U.S. telecom industry will witness more mergers and acquisitions in 2013. As the scarce and valuable wireless spectrum becomes utmost necessity, mergers and acquisitions increased exponentially. The strong established players need more spectrums to gain competitiveness, small players prefers to merge with strong rivals rather than trying to establish a nationwide foothold which is extremely capital intensive. Verizon Communications Inc. (NYSE:VZ-Free Report) bought spectrums from major cable MSOs including Comcast Corp. (NYSE:CMCSA-Free Report), Time Warner Cable Inc. (NYSE:TWC-Free Report) and Bright House Networks. Recently, Verizon announced the largest acquisition proposal of the wireless industry. The company has decided to acquire the remaining 45% stake of the Verizon Wireless Network from Vodafone Group plc. (Nasdaq:VOD-Free Report) for about $130 billion. Verizon currently holds the majority 55% of this venture.
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