Telecom Sector's Performance Meets Targets amid Heavy Stock Decline, Broadband ARPU Becomes Core Concern

Citi Research released its latest research report on May 7th, providing an in-depth review of the U.S. telecommunications services and infrastructure industry for Q1 2026, and offering a preview for the "Connecting the Data Points" annual industry conference held on the same day. The core conclusion of the report is that the wireless and broadband markets have emitted "mixed" signals; whether pricing power can be maintained will determine the valuation direction of each company.

Severe Divergence Between Performance and Stock Prices

The combined revenue of AT&T, T-Mobile, Verizon, Charter, and Comcast, the five industry giants, reached $134.1 billion in the first quarter, a year-on-year increase of 4.3%; the core telecommunications service revenue, excluding equipment sales, was $105.27 billion, which is in line with expectations; the core adjusted EBITDA was $47.75 billion, a year-on-year increase of 1.4%, slightly exceeding expectations.

However, the stability of the financial data did not soothe the market. Since the end of March, the average decline of the five stocks has been 12%, with Charter plunging nearly 28%, Comcast falling about 8%, and AT&T, Verizon, and T-Mobile also recording mid-single-digit declines.

The market's panic comes from two core indicators: the U.S. residential broadband ARPU (Average Revenue Per User) declined by 2% year-on-year to $70 in the first quarter, which is 1.5% lower than Citi's expectation; Charter's broadband ARPU dilution exceeding expectations is particularly glaring. Citi points out that the increasing proportion of low-cost FWA (Fixed Wireless Access) and Comcast's repositioning of the pricing card are the main structural factors dragging down ARPU.

Wireless: Inflection Point in Competitive Intensity

The wireless market shows a pattern of "increasing volumes and weak prices." The growth in postpaid mobile phone users has once again exceeded expectations, but except for T-Mobile, the industry's overall ARPU continues to be suppressed by the ongoing price war and cross-discounts of integrated packages.

However, Citi has noticed a potential turning point: several operators have indicated that equipment subsidy promotions have begun to stabilize or slow down from the end of the first quarter to the beginning of the second quarter. If the competitive landscape stabilizes as such, it will become an important bullish catalyst for telecom stocks.

T-Mobile's long-term variable is also worth paying attention to. Citi proposes a structural idea: T-Mobile could provide cable companies with consumer wireless MVNO (Mobile Virtual Network Operator) agreements in exchange for the right to resell cable broadband, thus becoming a national broadband virtual network operator (BVNO) in a light asset manner and bypassing competitors' integrated package advantages.

Cable Television: Overly Sold Off, But Real Pressure Exists

Citi believes that there are signs of overselling in the current broad market cable stocks, but the pressure is not fictitious. Comcast and Charter's "mobile + broadband" integrated package has real competitiveness, and the two companies' response strategies focus on three points: more actively promoting integrated solutions to deepen account penetration, looking for broadband monetization space while maintaining competitiveness, and reducing costs to maintain the EBITDA and free cash flow (FCF) bottom line.

Comcast's first-quarter broadband user loss has narrowed significantly, and the wireless penetration rate is increasing at a rate of about 100 basis points per quarter, currently reaching 16%. Charter, on the other hand, faces integration pressure after acquiring Cox, with a synergy target of $800 million; the progress of regulatory approval in California remains a market focus.

Infrastructure: The Clearest Long-term Logic

The telecommunications infrastructure sector is the direction where Citi has the most positive attitude in this round of reports. 2026 is characterized as a "clearing year" for digesting the customer churn rate brought by mergers and acquisitions, and AI and edge computing will become the next stage's growth catalysts.

In terms of tower, industry catalysts include: potential reconciliation with failed customer contracts (possibly with FCC intervention), stabilization of organic growth