Another losing week for the Fab Five(-$309B for the week, -$1.53 trillion YTD), and another week of gains for the Telco Top Five ($23B, +$110B). Despite the headlines, telecom makes a lot of sense for investors looking for steady cash flows and predictable dividends. Also, several companies (AT&T, +24% YTD, $202B market capitalization) are successfully managing through transformations. Everything could change tomorrow, but for now, wireless telecom is a safe haven for many investors.
The big headline was a rumor published first in Bloomberg. It stated that AT&T was close to purchasing Lumen’s residential fiber operations for $5.5 billion (article here). As of the fourth quarter, Lumen had approximately $17.9 billion in short and long-term debt and a total enterprise value slightly more than $20 billion.
The article is scant on details. If AT&T is indeed purchasing the fiber markets, which means major market areas only, then Lumen still needs to address consumer demand in secondary and tertiary markets. If another entity (perhaps Brightspeed or a Gigapower-esque entity) is purchasing the assets, scale economies will need to be obtained to have a competitive offering. What’s included will be the key headline if/ when a transaction comes together (our hunch is that it’s major metro markets only, but fully admit that we could be incorrect).
We have read some analysis that suggests T-Mobile is the loser from an AT&T transaction. That couldn’t be further from the truth. T-Mobile’s pursuit of a “fiber only” strategy is sound, and they have chosen two excellent partners with Lumos and Metronet. There will be plenty of room to expand those footprints with both fiber and fixed wireless. We also think that the more Lumen’s “RemainCo” looks like the legacy Level(3) network, the more attractive that entity would be to T-Mobile. Jumping at Lumen’s mass markets asset would be risky, in our view.
While we noted in last week’s Brief (here) that Sunit Patel would become the CFO of Crown Castle, we did not see the immediate termination of Steve Moskowitz coming (news release here). The company clearly stated, however, that it “was not a result of any disagreement regarding Crown Castle’s policies or financial performance and was not made for cause or related to any ethical or compliance concern.” As unusual as this development was, the stock was actually up slightly for the week. Strange days indeed.
File is below. Go Royals!
