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Comcast Dabbles In Internet, Media While Big M&A Waits

Comcast ’s ( CMCSA ) investment in Groupon — through a company headed by its former CFO — continues the cable TV firm’s move into Internet, software and media assets. Comcast continues to steer away from major M&A, though, following last year’s demise of the proposed Time Warner Cable ( TWC ) acquisition. Atairos, an investment firm formed by former Comcast CFO Michael Angelakis and funded mainly by the cable TV firm, said on Monday that it would invest $250 million in struggling Groupon ( GRPN ). Angelakis will join Groupon’s board. Chinese e-commerce firm Alibaba Group ( BABA ) earlier this year invested in Groupon. While Comcast’s chief financial officer, Angelakis engineered the cable TV firm’s two-part purchase of media giant NBCUniversal from General Electric ( GE ). In November, Comcast brought in new M&A expertise. Comcast named Robert Eatroff, formerly Morgan Stanley ’s ( MS ) head of mergers and acquisitions for the Americas, as its new executive VP of global corporate development and strategy. Comcast has signaled interest in making acquisitions overseas. Speculation that Comcast could buy a wireless phone company, such as T-Mobile US ( TMUS ), has cooled, though the cable TV firm has filed as a potential bidder in a government auction of airwaves. Comcast continues to active in media investments. Comcast’s Fandango, an online movie ticket seller, earlier this year acquired movie websites Flixster and Rotten Tomatoes from Time Warner’s Warner Bros. Fandango also bought online video retailer M-Go. In 2015, NBCUniversal invested $250 million in website BuzzFeed. Comcast also invested in digital publisher Vox Media and Visible World. Image provided by Shutterstock .

Led by Verizon And AT&T, Telecom Tops S&P Sectors; Dividends Rule

With Verizon Communications ( VZ ) stock up nearly 17% and AT&T ( T ) soaring over 14%, the S&P telecommunications services sector is poised to lead the S&P 500’s 10 sectors in Q1 performance. As of afternoon trading in the stock market today , the S&P telecom services sector ranked tops, with utilities the only other sector posting a double-digit gain, for the first three months of 2016. “Absent some blow-away window dressing late in the session, that’s the way” the quarter will end up, S&P analyst Howard Silverblatt told IBD. The S&P telecom services sector is up over 15% in Q1. High dividend-paying Verizon and AT&T are among the best-performing stocks in the S&P 100 this year. Smaller phone companies also have outperformed, with CenturyLink ( CTL ) jumping 26%, Frontier Communications ( FTR ) up 20% and Windstream Holdings ( WIN ) gaining nearly 17%. Among wireless-only service providers, shares of   T-Mobile US ( TMUS ) are down about 2% and  Sprint ( S ) stock is near down 4.5%. Neither T-Mobile nor debt-laden Sprint pay dividends. Though they’re not in the S&P telecom services group, cable TV companies also posted solid returns in Q1. Shares of  Charter Communications ( CHTR )  and Time Warner Cable ( TWC ), which plan to merge, are both up 10% in Q1. Analysts expect the Charter-TWC deal to close in May. Comcast ( CMCSA ) stock is up 8% this year, and shares of  Cablevision Systems ( CVC ) have edged up over 3%. The Q1 laggards have been the financial, health care and consumer discretionary sectors. Craig Moffett, an analyst at MoffettNathanson, says Verizon and AT&T have benefited from global interest rates falling and “risk appetites withering.” “Whether the telco rally has legs will depend on fundamentals and growth and perhaps a change in industry structure,” Moffett said in a research report. Federal regulators, though, have been opposed to wireless consolidation, such as a Sprint and T-Mobile merger. AT&T has also been boosted by its purchase of satellite TV broadcaster DirecTV Group, analysts say. At Barclays, analyst Amir Rozwadowski in a report said that while the “flight to safety trade” isn’t showing signs of dispersing, investors may look at fundamentals more, going forward. IBD’s Telecom Services-Integrated group ranks No. 39 out of 197 industry sectors. AT&T is an IBD Leaderboard stock. Image provided by Shutterstock .

How Apple, Comcast, Google, Amazon Have Skin In FCC Set-Top Game

FCC Chairman Tom Wheeler aims to throw open the set-top box market, a plan that has Comcast ( CMCSA ), AT&T ( T ) and other pay-TV providers steaming but could take years to play out. The Federal Communications Commission plans to make it easier for consumers to switch from set-top boxes leased monthly from pay-TV companies to new devices sold at retail by consumer electronics or Internet companies. The pay-TV industry is worried about more than just losing revenue from monthly set-top fees, which usually run around $10. Apple ( AAPL ), Alphabet ’s ( GOOGL ) Google, Amazon.com ( AMZN ) and other new entrants would provide their own programming guide to consumers. Pay-TV firms fear losing the “customer relationship” and along with it the ability to collect viewership data, the key for targeted advertising. The FCC could approve Wheeler’s plan by year-end. Comcast, AT&T and other pay-TV firms would have two years to comply with technical standards that give new suppliers access to programming content. So in a worst-case situation, competing set-top TV devices could be available in 2019. As it is now, the set-top game is hit and miss. Some set-tops not from the pay-TV provider work with the pay-TV providers’ service, but others do not, depending on the set-top box, the pay-TV provider and the user’s region. And that scenario probably is not going to happen. Even if the current FCC approves Wheeler’s plan, a new chairman is expected to head the agency in 2017 after November’s presidential election. A Republican appointee would likely not follow through on the set-top market overhaul, while another Democratic FCC chairman might have other priorities, says Paul Gallant, an analyst at Guggenheim Partners. And if the FCC forges ahead with the set-top plan, a court battle is likely, and it could drag on. In the meantime, pay-TV companies would take steps to “maintain consumer inertia and impede adoption,” says Timothy Arcuri, an analyst at Cowen & Co. Cable companies have fought FCC attempts to open up the set-top market for 20 years. Will Set-Top Issue Become Moot Point? In a few years, the uproar over Wheeler’s proposal could be much ado over nothing, some observers say, as changes in technology and the way we all view video might make this a moot point. AT&T, for example, plans on selling DirecTV’s programming over the Internet starting late this year, and consumers won’t need the satellite TV broadcaster’s set-top boxes anymore. Some analysts say the future battle will be over the highest-spending consumers — the ones that now buy more premium channels,  pay-per-view and, in the future, might pony up for cloud movie storage or other perks. Those are the same subscribers advertisers will be interested in as well. Wheeler’s proposal zeros in on such users, and it’s “apt to emerge as the single biggest threat” to cable TV companies since satellite TV rivals emerged 30 years ago, says Citigroup analyst Jason Bazinet. “If Silicon Valley gets its way, pay-TV firms will provide the costly infrastructure to deliver bits of information,” Bazinet said in a report. “And they will provide programming at scale — relegating the pay-TV firms to being content wholesalers.” Here’s a run-down of some companies that have a stake in the set-top box battle, and the threats or opportunities it may present: Apple . It reportedly shelved plans for an Internet video service after programmers played hard ball in content negotiations. Under the new set-top rules, the FCC says that only pay-TV subscribers will gain access to programming and that copyright protections will be preserved. Even so, the FCC could clear a path for Apple into Web TV. Arris Group ( ARRS ). The supplier of set-top boxes to the cable industry seems vulnerable. But it could get a lift if cable TV firms race to upgrade their own set-top boxes. Barclays analyst Kannan Venkateshwar says Arris could also shift its focus to the retail channel. Amazon. The e-commerce leader, like Google, took part in an FCC task force that studied security issues in distributing content more broadly. Amazon, a player in subscription video-on-demand, has also been mulling a Web streaming service with live broadcast content. Comcast. By year-end, Comcast expects at least half of its 22 million video subscribers will be using Internet-ready, X1 set-top boxes — “the most advanced on the market today,” says a Moody’s report.  Barclays calls the X1 set-tops “arguably better than platforms like Apple TV today in terms of functionality. Whether Comcast can keep innovating is key if legal battles to halt the set-top initiative fail. Google. One of the FCC’s goals is making it easier for consumers to search for all content on both traditional pay-TV platforms, including video-on-demand, as well as across the Internet. That would play into Google’s strengths. And Google could swap its own advertising for the local ads sold by cable TV companies. Cable firms are worried that technical standards could result in revealing the “secret sauces” of set-top design to an archrival like Google, which “appears to be the primary backer” of the new set-top rules, says Jeffrey Wlodarczak, an analyst at Pivotal Research. Roku . The maker of video streaming devices has supported cable TV firms so far in the set-top box battle. Roku supplies devices to Time Warner Cable ( TWC ) and Charter Communications ( CHTR ), which both offer streaming deals to customers. Citigroup says pay TV firms prefer to have an app for their consumer offering, similar to how they work with Roku, rather than giving Google and others access to their content. Roku recently raised $45.5 million in a funding round. It’s not clear how the set-top box issue may impact any plans Roku has for an IPO. Rovi ( ROVI ). The provider of interactive programming guides main customers are pay-TV companies under licensing deals. Its new FanTV platform provides search and programming recommendations. Rovi also could be a “potential beneficiary,” says Cowen’s Arcuri, as cable TV firms try to improve offerings vs. new rivals. Tivo ( TIVO ). The  DVR pioneer has expanded beyond hardware sales and patent licensing to online subscription services. TiVo has been viewed as a possible seller of retail set-tops, like Google. But, its customers include small- and midsize pay TV companies . TiVo could provide more cable firms with next-generation features, including its cloud platform and mobile apps, analysts say.