Telecom Carriers, Cable and Mobile Sector

By pjain      Published July 2, 2020, 10 p.m. in blog Invest   

Telecom Carriers and Cable Key Factors

Big3 Telecom investable with Strong Cash Flow

"Big Three" of US communications are still building wealth and selling cheaply, asserts Roger Conrad, editor of Conrad's Utility Investor.

  • TAX CUTS helped jump 2018 earnings 25%
  • The revenue, costs are fixed BUT earnings in 2018 jumped nearly 26% as the Trump administration's corporate tax cuts and new accounting rules boosted profits
  • 2019 earnings are expected to flatten eg for VZ rise just 1% to $4.74 per share.

Telecoms Want Piece of Media - not just Fat Pipes

No Growth without Media => Low PEs

Covid BINGING on Exclusive TVshows -> NFLX/Streaming

Staying-at-home public health orders could be a double-edged sword for media companies. Yes, more content is being consumed, but in the pandemic, massive cord-cutting is seen while some of the first net losses in streaming services have been realized as tens of millions of people have lost jobs and become more thrifty as recession unfolds.

Cord Cutting as No Sports, oldies/reruns

PayTVCo Subs Q1'20 m chg m Notes
T 18.8 -3.6 DirectTV mainly losses, Pushing TV Now
CHTR 15.6 -0.4
CMCSA 19.9 -0.95
Dish 9.0 -0.63 Satellite+Sling TV Q1-413k biggest-Ever qtr loss
VZ Fios 4 -0.25
Alice USA 3 -0.14
Hulu+Live TV 3.2 +0.1 Part of Disney
YouTube TV 2.3 +0.3 Promo "free", + buy push
* Data as of Q1'20

Virtual PayTV losing also

  • Cable's "Take anywhere"

  • Virtual pay-TV players also lost an estimated 341,000 subscribers in Q1,

    • AT&T TV Now
    • Dish's Sling TV
    • Hulu + Live TV - added 100k to reach 3.2m
    • YouTube TV - +300k reached 2.3m
    • FuboTV
    • Sony's PlayStation Vue — ceased service 1/31/20: former subs "appear to have gone… nowhere,"

Price Race to Bottom as Media want D2C

The media companies — Disney, NBCUniversal and WarnerMedia — have launched or are about to launch direct-to-consumer streaming services. Disney Plus, for one, notched 54.5 million customers worldwide as of May 4 less than six months after initial launch. That will be joined by HBO Max later this month and NBCU's Peacock, which is slated for a national rollout in July."

Carriers all losing subs

Role of 4G to 5G and Technology

5G = NEW SERVICES revenue

  • 5G wireless to have a role in manufacturing automation, cloud gaming, autonomous vehicles, drones and remote health care services.
  • Verizon has told analysts that it expects 5G fixed broadband revenue to become significant in 2021, with 5G business services picking up in 2022.

LONGER not much on core mobile - 5G rollout 2021+

  • 2020 when Apple (AAPL) rolls out new iPhones.

5G thesis a KEY LT but will take LONGER TIMEFRAME on tech/Huawei monopoly

  • Thesis is consumers will PAY MORE for 5G

  • Intel,etc. pushing

  • Higher CAPEX - Rollout of 5-G remains Verizon’s most important focus. In the meantime, selling at just 12.2 times expected 2019 earnings, the shares scarcely reflect any promise.

  • Verizon has been aggressive in building out 5G wireless infrastructure as the company rolled out 5-G service to 15 US cities as of the end of the quarter.

  • Verizon has been testing 5G broadband service to homes in four cities — Houston, Indianapolis, Los Angeles and Sacramento. However, Verizon does not expect meaningful revenue from 5G wireless broadband services to homes until 2021. The company's fixed 5G services use high-frequency radio spectrum. It's expected to buy more airwaves for 5G. That could delay a stock buyback.

TMUS R5

  • one of 30 most favored by hedge funds

International Telecom Carriers - ex China

International Telecom Carriers Key Investing Factors

AT&T and Verizon, together dominate the U.S. telecommunications market -- both wireless and the legacy landline. As our data, telecommunications, and media needs continue to grow, these two are poised to profit. Buzzwords like Internet of Things, 5G networks, and cloud computing all provide opportunities for these two.

ORAN R5 c14.7 y5.3% de? pay=100% div=0.8 epst-0.8 [14 18]

SEG: Core land/mobile, data - geo dist - Europe, Africa, and the Middle East.

SEG: Biz IT and integration

  • 2013 France Telecom ->
  • 1990 Orance founded

Q4'19 5yrEps-3% $5=0.2% peT=18 peF=12 Analyst~Neutral

TEF X 0.6 M*FV - brazil risk

BT X - huge debt - no growth

VOD - huge debt - no growth M*FV

Chinese Telecom Carriers

CHL doing real good

  • Outperformed the S&P 500 by more than 13%

  • Fort Knox-like Balance Sheet - $60 billion of cash and has no long term debt.

  • Current dividend of 4% - could be raised

  • Has 900 million subs, GOVT support & 70% owned *2 China Unicom only has 190m subs

  • Cheap - 3x times enterprise value to EBITDA ie cash flow can earn full value in just 3 years ~33% bond

  • Stable Growth with 5G - China, consumers currently pay on average just $10 per month for their cellular service.2 Compare that to the United States where the average consumer pays $80


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