What Lies Ahead For Telecom ETFs?

U.S. telecommunications industry had a disappointing 2017. However, signs of improvement were apparent from fourth-quarter 2017 with most of the major telecommunications stocks starting to perform well. Notably, all four national wireless carriers have gained postpaid subscribers in the last reported quarter.

Upcoming 5G Wireless Network

Fifth-generation (5G) superfast wireless networks will provide primary impetus to the telecom industry. In September 2017, Moody's Investors Service stated in a report that the evolution towards 5G wireless networks will result in higher capital spending for the U.S. wireless carriers. We expect wireless networks to provide primary impetus to the telecom industry. In this regard, Internet of Things (IoT) has the potential to emerge the numero uno factor for future growth in the space.

Major Positives

Several positives emerged for the telecom industry since the last quarter of 2017. President Donald Trump’s proposed policy changes have made the overall economic outlook fairly bullish. The two pro-growth agendas of Trump, namely significant cut in corporate tax and deregulation are major catalysts to the U.S. economy. Trump has stated that he wants to do away with nearly 75% of all governmental regulations during his term as the President. We believe that the telecom industry will be one of the major beneficiaries of this policy change.

On Dec 14, 2017, in a landmark decision, the U.S. telecom regulator Federal Communications Commission (“FCC”) repealed the Net Neutrality laws that it had imposed under the Obama regime. There is little doubt that the ISP industry will be the major beneficiary after FCC repeals Net Neutrality. Lenient regulatory attitude of current FCC may also pave the way for new merger and acquisition deals between ISPs and online digital media companies.

The proposal to reduce corporate tax rate from 35% to 21% would be immediately accretive to cash flow of the telecom carriers. Trump’s tax proposal will result in a huge windfall for telecom operators. The carriers can utilize this money for 5G network R&D and deployment. 

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