3 Telecom Stocks at Risk From Senate’s Push to Lower Broadband Costs

Stocks to sell

As the U.S. Senate rallies to lower broadband costs, it’s a pivotal moment for investors to scrutinize telecom stocks. Amidst this legislative whirlwind, key initiatives have emerged as game-changers. Firstly, Senator Jacky Rosen (D-NV) and 31 colleagues advocate fervently for the Affordable Connectivity Program funding extension. This vital program, a lifeline for countless households, ensures high-speed internet access isn’t a distant dream. Furthermore, Senator Kirsten Gillibrand (D-NY) amplifies this call, spotlighting the ACP’s role in aiding over 21 million families, including those in economically strained brackets.

In a similar vein, the Lowering Broadband Costs for Consumers Act of 2023 marks a significant stride. Spearheaded by Senators Markwayne Mullin (R-OK), Mark Kelly (D-AZ), and Mike Crapo (R-ID), this legislation directs the U.S. Federal Communications Commission to mandate contributions to the Universal Service Fund from broadband providers. This strategic move aims to make broadband more affordable through regulatory reforms.

For investors, these developments spotlight telecom stocks to watch. The sector’s evolving landscape, influenced by these legislative actions, presents unique opportunities and challenges. Keeping an eye on telecom stocks in this context is essential for anyone looking to stay ahead in the investment game. These initiatives not only reflect a positive commitment to societal welfare but also hint at potential shifts in the telecom industry, making telecom stocks a focal point for astute investors.

8×8 (EGHT)

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8×8 (NASDAQ:EGHT), a notable player in telecom stocks, has navigated a turbulent year with a 28% year-to-date loss. Key developments, including layoffs affecting 7% of its global staff, signal a strategic reshuffling. Moreover, its second quarter fiscal 2024 results revealed financial realities that investors must weigh. Amidst these challenges, EGHT has been involved in talks of a merger with RingCentral (NYSE:RNG). This potential union could redefine 8×8’s market stance and business approach.

However, the company’s fiscal year 2024 outlook appears daunting, with projections hinting at modest single-digit growth. The reliance on its Fuze acquisition for revenue growth underlines the company’s growth hurdles. Additionally, a heavy debt burden has strained 8×8’s finances. The current macroeconomic climate and market uncertainties further exacerbate this precarious position.

Despite these headwinds, 8×8 maintains strong customer retention. However, the potential for growth is overshadowed by immediate fiscal challenges and a high-interest environment. Furthermore, this company is undergoing operational losses, indicating it may not be a sustainable investment in the long-term. Investors should exercise caution, as the stock’s future hinges on broader economic improvements and its ability to manage financial pressures effectively.

Vodafone (VOD)

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In the high-stakes arena of telecom stocks, Vodafone (NASDAQ:VOD) emerges as a notable player, but not for reasons it would prefer. The company has grappled with a challenging year, marked by a notable 13% dip in its stock value. This downward trajectory highlights a series of financial and strategic hurdles that Vodafone has encountered.

At the heart of these issues lies its fiscal 2023 performance, which paints a concerning picture. A mere 0.3% increase in year-over-year revenue growth. Such a tepid rise underscores the substantial obstacles Vodafone faces as it strives to broaden its influence in the competitive telecom market. This scenario not only reflects the company’s current struggles but also poses serious questions about its future trajectory in an ever-evolving industry.

The first half of fiscal 2024 furthered these concerns, revealing a 4.3% decrease in revenue, hinting at ongoing struggles in maintaining profitability. The potential sale of its Italian operations to Fastweb, lead to a 4% drop in share price and a 2.6% decline in adjusted earnings.

On the legislative front, the U.S. Senate’s initiative for low-cost broadband introduces additional uncertainty. Although this movement is primarily aimed at increasing broadband accessibility for low-income households, it hints at possible regulatory changes that could impact Vodafone’s future earnings. This backdrop of potential regulation, combined with internal fiscal challenges, positions Vodafone as a telecom stock to watch with a cautious and scrutinizing eye.

Telephone and Data Systems (TDS)

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In the dynamic telecom sector, Telephone and Data Systems (NYSE:TDS) emerges as a key player to monitor. With a year-to-date return of a significant 77%, TDS presents a complex picture for investors.

TDS faces stiff competition from giants like Verizon (NYSE:VZ) and AT&T (NYSE:T). This rivalry intensifies the struggle for market share, especially for smaller entities like TDS. Technological shifts pose another hurdle. Rapid advancements demand hefty investments, a feat TDS might struggle with. Changing consumer trends further adds to the challenge, potentially shrinking TDS’s customer base.

Internal operational issues could be impacting TDS’s financial health. It’s telling that TDS is rethinking its strategy, particularly for US Cellular (NYSE:USM), which forms a substantial part of its business. Legal entanglements, like the ongoing class action lawsuit, add to the company’s woes. Such disputes drain resources and divert focus from core operations.

TDS’s latest financials from 2023 reflect a consistent revenue decline across quarters, underscoring its fiscal struggles. In the third quarter, a net loss and a shortfall in EPS further exacerbated the situation. This trend points to an urgent need for strategic reassessment and adaptation.

On the publication date, Faizan Farooque did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

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