There once was a time when the television set was king. It ruled from the very center of the living room, and family members gathered around to watch programs together – or argue about what channel to choose. Today, that scene has changed dramatically to one where the TV might be on in the background, but meanwhile, each family member is watching a screen of their own, disconnected from everyone else in the room. Where King TV once ruled the eyes and attention of all those in the living room, power has now been usurped by its smaller rivals—the smartphone, tablet and even the laptop.
Recent survey results confirm these sweeping changes to our TV-watching habits. According to Accenture’s 2017 Digital Consumer Survey, only 23% of global respondents preferred watching their programs on a TV set. This is down significantly from last year, when 52% of respondents ranked the TV set as their number one choice.
In order to revive their flagging growth, wireless companies are looking beyond their backyard to partner with cable and media companies.
This is good news for wireless providers on one hand, as it pushes people to be even more dependent on their mobile phones. On the other hand, though, an ultra-competitive environment within this sector has led to a commoditization of the service, where networks are similar in quality and the consumer is instead looking for the best value for their money. In order to revive their flagging growth, wireless companies are looking beyond their backyard to partner with cable and media companies.
AT&T has already begun this journey with its purchase of paid television provider DirecTV and plans for a merger with media giant Time Warner. According to AT&T, combining these capabilities will not only give the wireless provider a full-service TV platform but will also allow them to explore new opportunities for premium content, including interactive programming, on the 5G network expected to arrive in 2019 or 2020.
Verizon has also started to map its path to future growth. After its mega-bond deal to buy Vodafone’s stake in Verizon Wireless, Verizon planned to deleverage over time and improve its credit ratings. Recently, though, it has admitted that there has been no progress with paying down this debt. As a result, it is said to be exploring merger opportunities with cable companies as well as media companies such as Disney and CBS Corp.
And in having to adapt with another facet of change in TV watchers’ behavior—the growing popularity of streaming services—cable companies are now looking to develop their own wireless capabilities. In fact, Comcast and Charter recently announced that they have a one-year agreement in place to work together in developing wireless services, while staying out of each other’s way in the regions where their respective cable businesses already dominate. This may include partnering or merging with a smaller wireless competitor such as Sprint or T-Mobile.
From a credit perspective, the risks are hard to price in right now for the major issuers in these industries. But in our view, conducting your own independent research and being selective about what you purchase is the best course of action.
Companies mentioned are for illustrative purposes only and are not intended to be a recommendation to buy or sell any security.
Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), call (some bonds allow the issuer to call a bond for redemption before it matures), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).
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