Telecom Stocks Up as House Votes to Freeze Taxes

Joel Anderson |

Several telecom stocks are making gains after news that the US House of Representatives has voted to freeze taxes on wireless broadband access.  The new bill, passed on Tuesday, bans state and local governments from levying taxes on mobile service for five years.  This helped a sector where the cost of offering new smart phones has hurt many balance sheets in the short term.  The offices of Rep. Zoe Lofgren D-California, who sponsored the bill, told the AP that wireless customers are currently shelling out an average of 16.3 percent in taxes and fees, more than double the 7.4 percent averaged by other goods and services.

MetroPCS Stock Yo-yos

MetroPCS Communications, Inc. (PCS), the sixth largest prepaid wireless provider, posted strong gains, shooting up almost 11 percent just a day after tumbling nearly 10 percent.  Their Q3 earnings report released yesterday was weaker than expected, revealing an EPS of $0.19, beneath analyst expectations of $0.23.  Total revenue, meanwhile, grew 18 percent year-over-year to $1.205 million, but also fell short of projections of $1.224 million.  Any increases in revenue were negated by a 26.5 percent jump in operating expenses related to the introduction of new smart phones.  A rise in the churn rate to 4.5 percent also concerned investors and prompted a major sell-off that pushed the stock down to its 52-week-low of $7.58 a share, before rallying to $7.66 per share by market close.

Contrasting the more negative news, the report also indicated a bump in new subscribers. The new subscriber growth, alongside the latest bill, helped brighten the outlook for the company. Investors led shares to rebound, acting on the depressed share prices and potential in the success of Android smart phones.  This is good news for battered PCS shareholders who have seen the stock lose nearly 80 percent of its value since 2007.

Telecom Makes Gains Across the Board

Sprint Nextel Corporation (S) also showed strong gains today, jumping over 7 percent on the news from congress.  Sprint is coming off of news that it has renewed its deal with Clearwire Corporation (CLWR) last week, expanding their coverage to offer customers Long Term Evolution, or LTE, service.  Today, Sprint announced a new partnership with Sierra Wireless (SWIR) to co-market the new Sierra Wireless AirVantage M2M Cloud Platform that will use Sprint's network.  Clearwire also had a good day, with its stock posting  over a 7 percent gain.  Leap Wireless (LEAP) posted gains of more than 3 percent, after a strong quarterly report and outlook led it to a nearly 11 percent rise yesterday.

Unfortunately, Vonage Holding Corporation (VG) couldn't join in the party, as its earnings report featured a dreary outlook that drove stocks down nearly 14 percent.  The Q3 report showed positive news on the earnings report, with an EPS of $0.11 actually outpacing analyst estimations of $0.08 per share.  However, they saw its churn rate jump to 2.7 percent and failed to change their EBITDA of $165 million for the year 2011.  Investors repsonded to the weak guidance rather than the strong earnings and fled the stock in droves despite the gains elsewhere in the sector.

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Companies

Symbol Name Price Change % Volume
ODFL Old Dominion Freight Line Inc. 87.96 -0.18 -0.20 460,174
SWIR Sierra Wireless Inc. 15.10 -0.15 -0.98 190,850
S Sprint Corporation 8.07 0.09 1.09 9,454,118
VG Vonage Holdings Corp. 6.89 0.32 4.87 2,218,312

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