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Under Donald Trump’s presidency, 2017 may usher in a less restrictive FCC (Federal Communications Commission) that will likely boost telecom operators’ and other Internet service providers’ (ISP) revenues. After Trump’s win, the FCC abandoned its plans to reform the Business Data Services (BDS) market and has also decided not to proceed with its set top box reform proposals. The FCC was persuaded to take these decisions after a group of Republican lawmakers asked the regulator to refrain from acting on "controversial" issues during the White House transition period.
Moreover, Trump has appointed Jeff Eisenach and Mark Jamison as advisors of the FCC. This decision cast doubts over net neutrality. The appointment to the transition team appears to put net neutrality back on the front burner at the FCC as both of them are staunch opponents of it. Further, the newly constructed FCC may provide more liberal views on the intra-industry big ticket telecom mergers as opposed to strict regulations imposed by the previous board to put a check on monopolistic practices.
Other growth factors are likely to be those mentioned below:
Mobile Video Business: Gaining Traction
Internet TV is gradually gaining a strong foothold in the U.S. The legacy pay-TV industry in the country has been facing severe challenges from online video streaming service providers. The low-cost over-the-top video streaming service has resulted in massive cord cutting that is currently threatening the pay-TV business model.
Internet TV has emerged as a strong alternative to counter this competitive threat. At present, the web-based digital media market is growing swiftly. Digital media brands are progressively gaining rapid market traction especially among the younger generation. With demand for smartphones and tablets on the rise, target customers are increasingly watching videos online, and preferring them to costlier legacy pay-TV connections.
Gradually, more customers are using the Internet to watch videos, and they want mobility of their content. This provides wireless operators an opportunity to differentiate their products by offering access to select content through their networks. By making deals directly with content developers, the wireless carriers are trying to entice customers with "bundles" of content such as streaming entertainment or sporting events, possibly with no additional data charges.
The fiber optic network is increasingly becoming the most sought-after technology for secure and fast data transmission over long distances. Going forward, the wireline industry will largely evolve around the fiber-based superfast gigabit data transmission network.
In this regard, Verizon has decided to launch a fiber-to-the-premises (FTTP) network for both residential and business customers to deliver an exceptional 10 Gbps (gigabit per second) of upload and download speeds.
Alphabet Inc.’s (GOOGL - Free Report) fiber network currently offers 1 Gbps of speed while Comcast’s “Gigabit Pro” provides 2 Gbps of residential broadband Internet speed. AT&T is gradually expanding its super-fast fiber optic broadband service – GigaPower. AT&T’s service offers 1 Gbps Internet speed to both residential and small business customers.
Opportunities
The telecommunications industry as a whole offers a number of positives that are difficult to disregard from the standpoint of investors.
• Immune to External Disturbances: A major characteristic of the telecommunications industry is that it is immune to any international geo-political disturbance even when it leads to economic fluctuations. Thus, the ongoing sovereign debt crisis in Europe, the slowdown in China or other non-U.S. economic volatility may not have any immediate impact on the industry. • Barrier to Entry: The lack of public airwaves (spectrum) in the telecommunications industry creates a high barrier to entry. The U.S. telecom market is controlled by just four national players, as regional low-cost operators are not eligible to compete with large carriers. Furthermore, it is not easy for a new telecom carrier to establish itself in the market as it requires government approval to transmit voice, data, and video on public airwaves. Spectrum licenses are limited and therefore quite expensive. Moreover, the deployment of network infrastructure requires significant capital expenditure, which very few entities can afford. Thus, this barrier protects the profits of incumbents in the telecom space. • Strong Demand: A recovering economy speeds up demand for real-time voice, data and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions while upgrading plans. Moreover, the FCC projects mobile data demand to grow 25 – 50-fold over the next five years.
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U.S. Telecom on Growth Trajectory
Under Donald Trump’s presidency, 2017 may usher in a less restrictive FCC (Federal Communications Commission) that will likely boost telecom operators’ and other Internet service providers’ (ISP) revenues. After Trump’s win, the FCC abandoned its plans to reform the Business Data Services (BDS) market and has also decided not to proceed with its set top box reform proposals. The FCC was persuaded to take these decisions after a group of Republican lawmakers asked the regulator to refrain from acting on "controversial" issues during the White House transition period.
Moreover, Trump has appointed Jeff Eisenach and Mark Jamison as advisors of the FCC. This decision cast doubts over net neutrality. The appointment to the transition team appears to put net neutrality back on the front burner at the FCC as both of them are staunch opponents of it. Further, the newly constructed FCC may provide more liberal views on the intra-industry big ticket telecom mergers as opposed to strict regulations imposed by the previous board to put a check on monopolistic practices.
Other growth factors are likely to be those mentioned below:
Mobile Video Business: Gaining Traction
Internet TV is gradually gaining a strong foothold in the U.S. The legacy pay-TV industry in the country has been facing severe challenges from online video streaming service providers. The low-cost over-the-top video streaming service has resulted in massive cord cutting that is currently threatening the pay-TV business model.
Internet TV has emerged as a strong alternative to counter this competitive threat. At present, the web-based digital media market is growing swiftly. Digital media brands are progressively gaining rapid market traction especially among the younger generation. With demand for smartphones and tablets on the rise, target customers are increasingly watching videos online, and preferring them to costlier legacy pay-TV connections.
Gradually, more customers are using the Internet to watch videos, and they want mobility of their content. This provides wireless operators an opportunity to differentiate their products by offering access to select content through their networks. By making deals directly with content developers, the wireless carriers are trying to entice customers with "bundles" of content such as streaming entertainment or sporting events, possibly with no additional data charges.
At present, major pay-TV operators in the U.S. are offering Internet TV. These include Verizon Communications Inc. (VZ - Free Report) , AT&T Inc. (T - Free Report) , Comcast Corp. (CMCSA - Free Report) and DISH Network Corp. . All the four stocks mentioned above currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Expansion of Fiber Optic Network
The fiber optic network is increasingly becoming the most sought-after technology for secure and fast data transmission over long distances. Going forward, the wireline industry will largely evolve around the fiber-based superfast gigabit data transmission network.
In this regard, Verizon has decided to launch a fiber-to-the-premises (FTTP) network for both residential and business customers to deliver an exceptional 10 Gbps (gigabit per second) of upload and download speeds.
Alphabet Inc.’s (GOOGL - Free Report) fiber network currently offers 1 Gbps of speed while Comcast’s “Gigabit Pro” provides 2 Gbps of residential broadband Internet speed. AT&T is gradually expanding its super-fast fiber optic broadband service – GigaPower. AT&T’s service offers 1 Gbps Internet speed to both residential and small business customers.
Opportunities
The telecommunications industry as a whole offers a number of positives that are difficult to disregard from the standpoint of investors.
• Immune to External Disturbances: A major characteristic of the telecommunications industry is that it is immune to any international geo-political disturbance even when it leads to economic fluctuations. Thus, the ongoing sovereign debt crisis in Europe, the slowdown in China or other non-U.S. economic volatility may not have any immediate impact on the industry.
• Barrier to Entry: The lack of public airwaves (spectrum) in the telecommunications industry creates a high barrier to entry. The U.S. telecom market is controlled by just four national players, as regional low-cost operators are not eligible to compete with large carriers. Furthermore, it is not easy for a new telecom carrier to establish itself in the market as it requires government approval to transmit voice, data, and video on public airwaves. Spectrum licenses are limited and therefore quite expensive. Moreover, the deployment of network infrastructure requires significant capital expenditure, which very few entities can afford. Thus, this barrier protects the profits of incumbents in the telecom space.
• Strong Demand: A recovering economy speeds up demand for real-time voice, data and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions while upgrading plans. Moreover, the FCC projects mobile data demand to grow 25 – 50-fold over the next five years.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>