The Sunday Brief

Connecting technology, telecommunications, and the internet

Value Creation – Long-term charts, Fab Five vs. Telco Top Five (October 7)

by | Oct 8, 2022 | TSB

The phrase “good news is bad news” kind of summarizes the overall market performance for the week… or does it? Despite broader market weakness and concerns about PC shipments (who was extrapolating the pandemic-induced PC line? Really?), the Fab Five were actually up for the week (+$95 billion) and the Telco Top Five were down $2 billion.

We still need to get into earnings season, and, except for a brief comment about consumer from Verizon, there don’t seem to be a ton of missed expectations. There’s more fixed wireless competition for cable than ever, and there are more mobile options for consumers thanks to cable’s MVNO relationship with Verizon (and, in Altice’s case, T-Mobile). To no one’s surprise, Apple impacted the wireless device upgrade cycle (iPhone availability charts will be posted separately tomorrow afternoon).

Yet stock prices, particularly the Telco Top Five (except for T-Mobile), continue to decline. Verizon is quickly closing in on 20-year lows (the last time the stock closed below $30/ share was in November 2003), and AT&T, after all adjustments are made (and there are many) appears to be about 15% from it’s 20-year lows.

In 2003, the telcos were in pretty dire shape. DSL was facing significant challenges from cable’s DOCSIS standard, and the industry was still dealing with Worldcom fallout. Verizon did not own a nationwide backbone (the Worldcom-MCI acquisition came in 2005), and AT&T and SBC had not merged yet. The market is close to attributing a similar value to Verizon and AT&T as they did during a very trying time.

Comcast remains about 3x higher than they were in 2003 (hard to remember, but that was about the time that Comcast purchased AT&T’s recently spun off Broadband unit), and Charter has no comparison since they only emerged from bankruptcy in 2009. But cable still has cash to generate due to their market share. The outlook might be less bright, but today’s cash pays for tomorrow’s upgrades.

This leads us to an interesting question: Is it time for activist investors to move more aggressively in the telecommunications space? Will those investors hold senior management accountable for their poor decisions? Is it time for the Fab Five to use some of its cash to infuse Comcast, AT&T and Verizon with capital (or, in a very interesting turn, to have T-Mobile invest in cable)? Can the Fab Five do this without FTC/ FCC/ DOJ approval?

Low share prices (and abnormally high dividends, particularly for companies like Lumen) can sometimes lead to strange behaviors. Four of the Telco Top Five are getting ready to enter that Fun House.

More in next week’s Brief. Have a terrific remainder of the weekend. Full file (including cash balances of each of the Fab Five) are in a separate tab.

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