Top 5 Themes From Deutsche Bank's Media, Telecom Conference

Deutsche Bank remains on the sidelines on carriers, except T-Mobile US Inc (NASDAQ: TMUS), due to tough fundamentals, and rather prefers tower companies, with American Tower Corp (NYSE: AMT) and Crown Castle International Corp. (REIT) (NYSE: CCI) being its favorites.

The brokerage listed top five themes from its Media and Telecom conference, including aggressive competition in U.S. wireless and rising M&A potential industry-wide.

The other themes were improving sentiment and outlook for U.S. towers; early positioning for 5G; and regulatory tailwinds from tax reform/FCC de-regulation.

Wireless Wars Continue

“With all four nationals now offering more aggressively priced unlimited plans, competition remains elevated,” analyst Matthew Niknam wrote in a note.

Niknam pointed out that Sprint Corp (NYSE: S) expects higher first quarter postpaid phone churn versus prior expectations and AT&T Inc. (NYSE: T)’s service revenue would be hurt due to greater competition.

Also, the analyst recalled that Sprint and US Cellular citing difficulty in sustaining current plans at reduced price points, with Sprint indicating ARPU’s would need to increase to support required investment.

“[W]e believe Verizon Communications Inc. (NYSE: VZ) could see greater near-term revenue/margin impacts due to the current landscape, and TMUS pointed to short-lived headwinds vs. VZ (immediately post launch of VZ’s new plans), and also cited better performance from Sprint in prepaid,” Niknam highlighted.

M&A, Tower Stocks

On the M&A front, Niknam said Sprint’s comments imply less concentration risk in an intra-industry deal where 4 players consolidate to 3. But, T-Mobile reiterated the regulatory approval risks to such a deal, and noted any such deal would require a “significant break fee.”

Meanwhile, Nilknam noted that tower companies are best positioned to capitalize on the Wireless competition, as carriers invest to support unlimited plans and seek out additional network capacity/speed.

“SBA Communications Corporation (NASDAQ: SBAC) cited ‘green shoots’ that may drive upside to 2017, while AMT expects a 15 percent yoy increase in organic colo/amendment activity,” Niknam continued.

In addition, carriers agree that 5G is the future of Wireless, but it may not arrive any time soon.

On the regulatory front, the analyst said, tax reform/de-regulation should provide some relief despite tough fundamentals.

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