Macquarie Analyst Offers Steps Carriers Should Take to 'Heal' (VZ) (T) (TMUS) (S)

Instead of piling on more criticism at wireless carriers amid recent profit warnings from market leader Verizon Communications (NYSE: VZ) and AT&T (NYSE: T) and an expensive convert from T-Mobile (NYSE: TMUS), Macquarie telecom analyst Kevin Smithen offered solutions to heal the industry.

Notably, Smithen enlisted help from colleagues Guy Peddy in Europe and Nathan Ramler in Japan to better understand how these markets began to repair themselves after several years of falling EBITDA and horrid telco stock performance.

According to Smithen, the following steps to begin the healing process:

• Implement network sharing immediately
• Do whatever is necessary in order to sustain or grow (for T and VZ) rather than cut network investments and continue their revenue diversification efforts (incl. a dividend cut at T)
• Rush to partner with Comcast and Charter/Liberty on quad-play, content and Wi-Fi offload
• Let 'em go, Let 'em go – i.e., T and VZ should allow 5% of their subs to leave rather than reprice the remaining 95%
• Accelerate deployment of small cells rather than continuing to use pricey licensed spectrum for urban capacity enhancements
• Raise the white flag with regulators and politicians and enlist content and apps companies as allies in this lobbying effort

If carriers don't take steps now, the analyst believes it will get a lot worse for T and VZ as they continue to reprice their bases on lower priced plans.

Also, the analyst said even though T-Mobile and Sprint are cheap at current levels, "eroding investor sentiment in the space is likely to weigh on all four stocks in the near term until S and T-Mo can show material EBITDA ramps"

"Though we feel that T and VZ shares will drift lower over the next few months, we are on the look-out for signs that the industry is adopting some of our steps (or others) to heal itself," he added.

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