Editor’s note: Analysts from Technology Business Research see major changes ahead in the telecom industry’s future under a Donald Trump Administration. In the second of a multi-part report, the analysts predict what will happen under the FCC. Part one is also available to WRAL TechWire Insiders
Contributing analysts include:
- Michael Sullivan-Trainor, Telecom Executive Analyst
- Chris Antlitz, Telecom Senior Analyst
- Michael Soper, Telecom Analyst
- Patrick Filkins, Telecom Analyst
Tax reform: Lower corporate tax rate and cash repatriation tax rate
- Likely Policy: Tax reform will be one of the top priorities of the Trump administration, particularly lowering the corporate tax rate from 35% to a percentage more competitive with other countries (15% is the rate Trump publicly stated). Additionally, Trump is adamant about initiating a cash repatriation tax holiday at a 10% rate, down from 35% currently.
- Impact: These tax policy changes would encourage multinational corporations (including telecom operators and vendors) to bring tens of billions of dollars in cash held overseas back to the U.S. We envision this cash windfall would flow into capex, R&D, M&A, share buybacks, dividends, pension funding and other initiatives. Any lowering of the tax burden faced by corporations would be immediately accretive to cash flow and would enable telecom operators to increase investment in capex.
M&A: Fewer obstacles to consolidation
- Likely Policy: TBR believes the Trump administration will lean toward pro-business policies and these policies will extend to industry consolidation.
- Impact: Despite comments by Trump opposing the AT&T-Time Warner deal, we believe it will ultimately receive regulatory approval with some concessions. Meanwhile, SoftBank CEO and Sprint chairman Masayoshi Son is likely to put the T-Mobile merger proposal back on the table as he aims to get scale in the U.S. market to pose a greater competitive threat to AT&T and Verizon. TBR expects other horizontal and adjacent deals to surface that did not under the previous administration, which was more hostile toward most telecom-related tie-ups. Industry consolidation would concentrate power, but would also enable operators to evolve into digital service providers and provide new services more quickly.
Capex: Encourage infrastructure development via lower taxes and stimulus programs
- Likely Policy: With job creation and infrastructure development two major themes of Trump’s campaign, TBR expects his administration to promote both via subsidies and public funding. This extends to telecom infrastructure.
- Impact: Bringing LTE to all rural areas within the U.S. as well as upgrading broadband access are initiatives that could receive support from public funds. Lower taxes would also enable telecom operators to increase capex budgets to build out and upgrade their networks.
China: Maintain ban on China-made infrastructure
- Likely Policy: One policy that TBR believes the Trump administration will keep in place is banning the use of Chinamade infrastructure in areas that could threaten national security. It is highly unlikely that Huawei and ZTE will be able to sell telecom infrastructure into the U.S. market, primarily to Tier 1 operators, but this could also extend in a much more pervasive way to smaller carriers and other companies that are directly exposed to national security assets.
- Impact: This would be a welcomed outcome for Europe-based and domestic vendors that sell telecom infrastructure in the U.S. and that have been challenged in international markets by the aggressive pricing tactics of these rivals. Ericsson, Nokia, Cisco, Ciena and Infinera are just a few of the companies that will benefit if this policy is maintained or expanded.