Well hurricane Sandy continues to pound my neighborhood and while my standby gas generator continues to keep the lights on, a large tree just fell in front of my house. Check out the picture below. Luckily, no one is hurt. So with everyone safe and not much else to do, I wanted to share my thoughts on whether or not the upcoming AT&T analyst day will impact the future stock performance of Cable TV operators and AT&T broadband access equipment suppliers like Adtran, Alcatel-Lucent and Ciena.
Sometimes, the performance of a stock or industry can be determined by a significant change in the competitive landscape. The performance of leading Cable TV stocks Comcast and Time Warner Cable over the past several months I believe is a case in point. Since December 1st, 2011 Comcast and Time Warner Cable stock prices are up over 60% while the S&P 500 has only gained about 13% over the same period. What happened to the competitive landscape after December 1st 2011 that led to such a strong outperformance of the Cable TV stocks? Simple, Verizon announced it was purchasing the wireless spectrum owned by Comcast, Time Warner Cable and Bright House on December 2nd, 2011. In addition, both AT&T and Verizon in 2012 have reduced their respective spending on their wireline networks as they dramatically shifted their capital spending and strategic business development towards the expansion of their respective wireless businesses. Basically, Cable TV operators kept focusing on what they do well, namely, residential triple play while AT&T and Verizon were both in a hunt for obtaining spectrum in a manner acceptable to the FCC/DOJ and in a race to see who can build out a 4G LTE network the fastest.
The question now becomes, will this favorable competitive dynamic continue into 2013. I think we will get part of the answer to this question at the upcoming AT&T analyst day scheduled for November 7th. The press and analyst community has written about how AT&T is contemplating upgrading millions of rural access lines with higher speed broadband technology. A decision is likely made public during this analyst meeting. In addition, industry people have suggested that AT&T may be also considering a more comprehensive broadband initiative for 2013 that will also target the small medium business market to fend off an increasing effort by the Cable TV operators in this segment of the market.
A renewed focus by AT&T on rural broadband and being more aggressive against Cable in the SMB segment, could cause a shift in the favorable competitive dynamics Cable has seen since December of 2011. This could put some pause, at least temporarily, in the strong outperformance of the Cable TV stocks. Also, if AT&T was to indicate a new rural broadband spending plan and more spending to fend off Cable in the SMB market for 2013, it could cause a bounce in the Broadband Access and Metro Ethernet equipment suppliers that supply to AT&T such as Adtran, Alcatel-Lucent and Ciena.