This was an earning-filled week with each of the Telco Top Five and three of the Fab Five reporting results. We will be spending a lot of time over the next month analyzing each what was said (and not said) on the conference calls. Here is our initial read of the three big telecom themes from the calls to date:
- Price increases are coming. Telecom has traditionally managed to grow with inflation, but this time, we think they will grow faster than inflation. AT&T’s February outage serves as a reminder of the price/ value gap that currently exists. Verizon has already been leading the party (and the company, through their local management, minimized the size of the “churn bump”), but more increases are coming for the Big 3. To the extent that the cable MVNO agreements are linked to competitiveness clauses (which would drive up costs for cable if retail prices rise), they will be forced to follow suit.
- Capital spending is falling. Balance sheets get a breather, and so do the service companies that had been working on C-Band deployments. There were dramatic sequential decreases in capital spending (will cover next Sunday) which means less coverage projects (capacity projects will continue unabated). Hopefully there will not be another C-Band like event while those same services companies are fulfilling BEAD requirements for fiber builds.
- Interest rates are rising (and will continue to rise through the summer). This impact is minimized for companies like T-Mobile and Verizon, but important to the refinancing requirements of AT&T and Charter (and one driving reason behind AT&T’s aggressive deleveraging which we will discuss in an upcoming Brief). At least deferred tax liabilities and pension obligations do not carry the same inherent interest rate requirments.
Oh yeah – T-Mobile and a new (private equity) EQT fund bought Lumos, and Google will now be paying a dividend.
File is below. Please note that the share counts and net debt schedules will be updated in the May 10th interim Brief (2 weeks from this issue). Also, if you can’t wait until next Sunday to get Jim’s earnings insights, he just completed a podcast with The 5G Guys which should drop on Wednesday here.
