SA Asks: What's next for telecommunications stocks?

[Comcast office in Englewood, CO, USA]
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Earlier this week, telecommunications conglomerate Comcast (CMCSA [https://seekingalpha.com/symbol/CMCSA]) announced plans to spin off its media/entertainment business from its core broadband operations, sparking speculation that both companies could seek out M&A deals post-split.

We asked Seeking Alpha analysts Passage Research [https://seekingalpha.com/author/passage-research], Andriy Blokhin [https://seekingalpha.com/author/andriy-blokhin], IWA Research [https://seekingalpha.com/author/iwa-research], Justin Purohit [https://seekingalpha.com/author/justin-purohit], and APAC Research [https://seekingalpha.com/author/apac-research] what they thought lay ahead for the telecom sector.

Passage Research [https://seekingalpha.com/author/passage-research]: There appears to be an impetus in the legacy broadband industry really for the first time in over a decade. We're starting to see much more consolidation as well as strategic actions taken, most notably with Comcast's (CMCSA [https://seekingalpha.com/symbol/CMCSA]) news that they're looking to separate their broadband operations from higher growth portions of the business.

This no doubt comes on the back of some pressure on legacy telecom providers like Verizon (VZ [https://seekingalpha.com/symbol/VZ]) and AT&T (T [https://seekingalpha.com/symbol/T]) to compete with the likes of SpaceX (SPCX [https://seekingalpha.com/symbol/SPCX]), who is growing Starlink rapidly at an affordable price for U.S. households. Legacy wireless will simply de-rate until these companies take action, but we're certainly seeing a faster than expected response.

Even with news that Charter (CHTR [https://seekingalpha.com/symbol/CHTR]) may be partnering with SpaceX (SPCX [https://seekingalpha.com/symbol/SPCX]), these stocks that have been under pressure for years with clear subscriber churn and weak ARPU can finally have some sort of optionality premium applied to them. This creates a fresh look at the sector, which has largely been left for dead.

I don't think it's the last we'll see of partnerships, strategic actions, and even outright M&A. There are companies adjacent to the space, too, who need to put cash to work, namely Netflix (NFLX [https://seekingalpha.com/symbol/NFLX]).

Andriy Blokhin [https://seekingalpha.com/author/andriy-blokhin]: Telecom stocks, especially with legacy broadband networks like Charter Communications (CHTR [https://seekingalpha.com/symbol/CHTR]) and Comcast (CMCSA [https://seekingalpha.com/symbol/CMCSA]), are entering difficult periods. They are increasingly challenged by fixed wireless access providers like T-Mobile (TMUS [https://seekingalpha.com/symbol/TMUS]) and Verizon (VZ [https://seekingalpha.com/symbol/VZ]) in dense urban areas.

Spectrum auctions in 2026 and 2027 will make things even harder. Many broadband providers respond by lowering prices, investing in their networks, and bundling other services. Some are breaking businesses apart, like Comcast's recent NBCUniversal/Sky spinoff announcement.

My expectation is that legacy network providers' stocks will continue facing pressures until price wars stabilize and we reach price equilibrium sometime in 2027-2028. Depressed valuations and panic selling create opportunities, though, like with my recent long thesis on Comcast (CMCSA [https://seekingalpha.com/symbol/CMCSA]). But it is important to know the risks before investing.

IWA Research [https://seekingalpha.com/author/iwa-research]: Although Comcast's (CMCSA [https://seekingalpha.com/symbol/CMCSA]) spin-off announcement comes as an expectable development given the company's plans to focus on its growth pillars and should help unlock value in its powerful cash flow generation engines, similar to what Warner Bros. Discovery (WBD [https://seekingalpha.com/symbol/WBD]) had been considering, I don't believe it will have a meaningful impact on M&A activity in the sector.

There is certainly a scenario where at least one of the companies formed from this spin-off would be part of an M&A deal in the future, but the overall impact on the broader industry doesn't seem meaningful.

I expect the broader range of telecom and telecom-related stocks, such as Verizon (VZ [https://seekingalpha.com/symbol/VZ]), AT&T (T [https://seekingalpha.com/symbol/T]), SBA Communications (SBAC [https://seekingalpha.com/symbol/SBAC]), American Tower Corporation (AMT [https://seekingalpha.com/symbol/AMT]), and the rest, to continue showing significant signs of pressure, especially due to the high-rate environment.

These companies face major levels of pressure coming from their high levels of leverage in this environment, making refinancing more expensive while we can see players like Verizon actively working on reducing costs and going into a defensive mode. Their valuations are also threatened by the elevated treasury yields, making the market demand a better return compared to the risk-free rate.

However, looking at this from a long-term perspective, I see this as one of the best times to add, as I've been able to develop quite significant positions in some of the top dividend payers in the industry at very attractive levels and yields on cost, and I don't mind waiting for a recovery.

Justin Purohit [https://seekingalpha.com/author/justin-purohit]: I continue to favor a selective approach toward telecom stocks rather than the group as a whole. In my view, companies that can pair stable cash flows with growing businesses outside traditional broadband or wireless look better positioned than those relying solely on subscriber growth.

More broadly, I think investors will continue rewarding disciplined capital allocation, strong free cash flow generation, and sustainable dividend payouts as competition across the industry remains intense.

APAC Research [https://seekingalpha.com/author/apac-research]: Telecom is a hard industry to get a read on. We may see some involution as major telecom companies compete for subscribers, which will pressure margins. Revenue growth will likely remain flat, and I wouldn’t be shocked if we saw a moderate decline. 5G makes it easier to deliver high speeds without the need for wires, and SpaceX’s (SPCX [https://seekingalpha.com/symbol/SPCX]) wireless efforts could prove disruptive as well.

At the same time, AI and general consumer consumption will keep data demand high. The next “big” thing for telecoms may be figuring out how to monetize data via developer APIs and the like.

* Top Communication Services Stocks [https://seekingalpha.com/screeners/96793116-Top-Communication-Stocks]

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