The Sunday Brief

Connecting technology, telecommunications, and the internet

Value Creation – Long-term charts, Fab Five vs. Telco Top Five (March 1)

by | Mar 2, 2024 | TSB

“In like a lion, out like a lamb” is the traditional saying to describe March. While both the NASDAQ 100 and S&P 500 indices were reaching record highs last week (CNBC article here), the Fab Five (-$15 billion) and Telco Top Five (+$1 billion) were relatively stable last week – hardly lion-like activity. The Fab Five would have a decent 2024 if they merely held on to their year-to-date gains (+$710 billion). For the Telco Top Five, however, they need an earnings-driven rebound (-$2 billion so far in 2024).

The Fab Five gains are not equally weighted, however. Apple and Google have lost value in 2024, and it’s not because of the Bard/ Gemini fiasco (Google) or the widely expected termination of Apple’s car program (great article on that from Bloomberg here). Apple faces a global slowdown in consumer spending, partly driven by pandemic spending, but also driven by affordability. The digital world is awash in advertising supply, and tools like OpenAI’s ChatGPT are reducing the need for search.

Usually, an acquisition or three would fill gaps and growth would continue unabated. Clearing government regulatory hurdles, both in the US and EU, is becoming more difficult. Microsoft played the long game with Activision Blizzard in 2022 and 2023, but Amazon had to abandon its acquisition of iRobot, the maker of Roomba, in late January. Bottom line: If the current president is not re-elected in November, it’s going to be a field day for M&A.

Meanwhile, AT&T took a lot of hits for their $5/ account credit due to their February outage (we covered this in last week’s Brief). As we stated then, there’s a price/value gap in mobility that has only been exacerbated by increasing bandwidth and smartphone chipsets. The $5 credit is appropriate from a monthly bill perspective – it represents one less day of consumer postpaid revenues for AT&T. But the value lost from limited/no communications is an entirely different matter. Assuming no other outages occur in 2024 or 2025, all is forgiven. But one more widespread outage in 2024 will lead to “looking.”

While February was a bad month for AT&T, it was nothing compared to Echostar/Dish. Last week, they company made news on two fronts: 1) They indicated in their 10-K SEC filing that there is no chance they are going to raise the funds by April 1st to buy the nationwide 800 MHz spectrum band from T-Mobile (article from Light Reading here), and 2) they disclosed in the same 10-K the following on page 51:

“We do not currently have the necessary cash on hand and/or projected future cash flows to fund the November 2024 debt maturity and subsequent interest on our outstanding debt. To address our capital needs, we are in active discussions with funding sources to raise additional capital and refinance our outstanding debt. We cannot provide assurances that we will be successful in obtaining such new financing and/or refinancing the existing debt obligations necessary for us to have sufficient liquidity. If we are not successful in these endeavors, then capital expenditures to meet future FCC build out requirements and wireless customer growth initiatives will be adversely affected.”

The “Risk Factors” section of any annual report is usually filled with a wide range of possible outcomes, but it’s rare that disclosures like the one above are disclosed. As many analysts have speculated, Dish could securitize additional spectrum, but it’s probably time to think about the overall viability of the company. We will have additional thoughts on possible outcomes in next week’s Brief (including what a cable consortium or one of the Fab Five could do with Dish’s current spectrum holdings + the 800 MHz spectrum T-Mobile will now be forced to auction).

Lastly, the rumor mill started about Altice USA with Bloomberg speculating that Spectrum was contemplating an aquisition, followed by several articles like this one from Light Reading speculating that Comcast and T-Mobile were also interested. Charter still has a fairly high leverage ratio (and a low stock price) so it’s not entirely sure how they would fund the transaction. We think that consolidating more of the NYC metro area (which includes Altice’s properties in Connecticut and New Jersey) has highly accretive benefits to Charter. The regulatory hurdles will be high, however, with ACP-like (e.g., Charter would offer a $15 or $20/ month basic plan to income qualifying households across their entire footprint) concessions required for approval. We hope it gets done and that it triggers a final wave of reclustering in the cable industry.

That’s it for this week. If you attended MWC (or Metro Connect) and would like to share your thoughts on the show, please send them to sundaybrief@gmail.com. File is below.

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