UBS Communications stocks to watch focus on broadband, wireless shifts
DKosig

A look ahead at the themes for Communications stocks in 2023 from UBS has a gaze that turns to the airwaves - whether it's the shift of broadband Internet's center of gravity to include 5G players, or the growing entry of cablecos into the traditional wireless carriers' space.
The "new era" in broadband that launched in 2022 will keep advancing in the coming year, analyst John Hodulik and team argue.
"Cable dominated the broadband market in the U.S. for more than a decade but this came to an end in '22 as the wireless carriers focused their 5G networks and new swaths of spectrum on the opportunity," Hodulik said.
Fiber strategies at the telecoms took a back seat to their fixed wireless access buildouts - but fiber should "reemerge as a growing threat in '23" after 6M new passings in 2022 - up from 4M in 2021 - and with 9M set for 2023.
The result is continued expected challenges for cable, with limited customer activity, those increased fiber deployments and corresponding heavier competition from fixed wireless. "Cable high-speed data revenue growth was effectively halved in '22 and we expect it to halve again in '23," the team said, expecting EBITDA growth in that industry to slow to low single digits.
Cable meanwhile will keep targeting wireless, taking an estimated 40% of postpaid phone subscriber additions in 2023 vs. 25-35% in recent years, the UBS analysts said - though the incumbents' handset subsidies will mitigate some of that damage.
"We expect Verizon (VZ) to lose consumer subs again in '23 but believe the company will be more nimble," Hodulik said. "Dish (DISH) remains a wildcard but we expect limited impact given spending constraints."
Industry sub growth will moderate as the COVID-19 pandemic's tailwinds fade, they said, but average revenue growth should stay positive, bringing improving margins and solid low- to mid-single digit wireless EBITDA growth as capital expenditures settle down.
As for traditional media, it's still a hard road ahead for the first half, with cord-cutting accelerating and ongoing declines in linear TV advertising, the analysts said. They expect there were record net disconnections for linear TV last year, with more than 7% of subscribers canceling service, with more like a 10% drop at traditional providers (offset by virtual gains).
Meanwhile, core linear TV advertising seems like it's headed for a 6% decline for the last quarter of 2022, they said - a performance that could worsen in the first half of this year amid a thinner sports schedule and ongoing macro challenges.
The bank's top pick on the telecom side is T-Mobile (NASDAQ:TMUS), as its "network advantage and synergies" support high-single-digit growth in EBITDA and ramping buybacks.
Its favorite name in media is agency-focused Endeavor Group (EDR), "given its leverage to sports rights inflation and lack of exposure to linear TV." And its infrastructure pick is SBA Communications (NASDAQ:SBAC), sporting a pure-play approach to tower exposure and some expected acceleration in organic revenue growth - though it's also "constructive" on American Tower (NYSE:AMT) with an attractive valuation and improving growth.