Conference Insights: The future of media, internet and telecoms
Deutsche Bank's 33rd annual Media, Internet and Telecom conference flagged rising wireless promotional intensity in Q1 2025, a potential softening in the ad market, and a pro-auction FCC stance under the new administration. These themes signal headwinds for telecom and media sector revenues, with knock-on effects for consumer discretionary spending and inflation expectations. Per the full note source, the desk sees the promotional cycle as a near-term risk to wireless pricing power, while the ad market softness may presage broader economic slowing. Consensus among sector analysts is mixed, with no clear directional bias on FX pairs yet, but the calendar offers no high-impact US events in the next 30 days.
What the desk is arguing
The desk argues that rising wireless promotional intensity in Q1 2025 marks a competitive escalation that could pressure carrier margins and subscriber revenue. Per the full note source, the conference revealed that promotional subsidies have increased this quarter, reversing a multi-year trend of disciplined post-paid subscriber adds.
Key evidence includes observations from wireless carriers present at the conference, where executives acknowledged the uptick in promotions. The desk interprets this as a potential structural shift rather than a one-off January effect, citing the FCC's stated priority to auction more spectrum, which could intensify competition further.
What the calendar says
There are no high-impact US economic events in the next 30 days that would directly intersect this thesis. The desk will monitor upcoming earnings calls from major wireless carriers for commentary on promotional trends and ad market conditions.
Key takeaways
- 01Wireless promotional intensity increased in Q1 2025, reversing a period of stable subscriber adds.
- 02FCC prioritizes spectrum auctions under new administration, potentially increasing competition.
- 03Early signs of ad market softness in digital audio and terrestrial radio sectors.
- 04No immediate FX calendar catalysts; watch for carrier earnings updates.
Market implications
Monitor USD/JPY for risk-off flows if ad softness signals broader economic weakness. A sustained promotional war could weigh on US telecom stocks, indirectly pressuring the dollar if consumer sentiment deteriorates.
Risks to this view
The promotional intensity may prove transitory, reverting to disciplined pricing later in 2025. Also, if ad market softness is confined to niche segments, the broader economic signal would be muted, invalidating the bearish macro read-through.
Welcome. You are listening to another episode of PodZep, the series where we discuss some of the best ideas coming out of Deutsche Bank Research. For this episode, we're going to change it up a bit.
A few weeks ago, we hosted the Deutsche Bank 33rd Annual Media, Internet, and Telco Conference in Palm Beach, Florida. To help unpack some of the key themes discussed at the conference, with me today are Brian Kraft, Ben Soff, Matt Nicknam, Lee Horowitz, and Ben Black. Great to have you all in the studio today.
Thanks, Matt. So this should be a lot of fun, but we've got a lot to get through today. Brian, I'd like to start off with you.
You had a number of prominent companies at the conference, in addition to some very interesting panel discussions, one of which was the FCC, the former FCC chair, Ajit Pai and Morgan Lewis partner, Andrew Lipman. What were some of the key themes you took away from the conference? Yeah, Matt, there were really three things.
So first, what we heard is that wireless promotional intensity has increased this quarter. So basically, we're seeing higher promotional subsidies amongst the wireless carriers, so more competition. Secondly, under the new administration, a key priority for the FCC is making more wireless spectrum available to the industry via auction.
And then third, there are some early indications of softness in the ad market from a couple of companies in the digital audio and terrestrial radio space. Great. So let's go into the wireless promotional intensity picking up.
I think for a number of years, we've had pretty good post-paid sub ads for the last two or three years, right? But why do you think it's starting to soften a little bit as we start 2025? Sure.
I'd say at first, it's too early to tell if this is just a like gross ad quarter, particularly in January, or if this is part of a longer term trend. So we're going to have to see how this plays out. But I think there's a couple of things going on.
January was a soft quarter from an industry gross ad perspective. That could be because of the weather, it could be just normal kind of variability, or it could be that we're in for a softer year this year. So we'll have to see.
The other factor we think it is, is a combination of not just those slower volumes, but also some company specific factors. So namely, AT&T has three year promotions starting to expire. And so that's driving some incremental churn at AT&T.
And then secondly, Verizon had some price increases they did in the quarter, which drove incremental churn. So as that industry gross ad pool becomes smaller, you see companies having to work harder in order to earn their share of that smaller gross ad pool. And so we think that's why we're seeing more aggressive promotions.
That industry slowdown, plus the company specific factors I mentioned. Right. And then onto the FCC, the refocus on wireless spectrum becoming more available.
So we have a new administration, and we have a new FCC chair. We had the old FCC chair under the prior Trump administration, Ajit Pai, speak at the conference. And I thought he gave some really interesting thoughts on what could happen with the spectrum.
What did you take away from that? Yeah. First off, I'd just say, long term, the industry needs more spectrum, right?
So it's like land for real estate developers. So it's really important that the industry gets more spectrum over time. In the short term, it doesn't really impact the business.
It does consume a bit of balance sheet, although I think the market's largely expecting some level of spend. I think the insights we heard from Ajit were the likely sources of spectrum are going to be almost certainly the reoption of the AWS3 frequencies that were forfeited by DISH several years ago. Secondly, upper C band.
And then third piece, which a lot of people have talked about, but it sounds much less likely that it'll play out, is the lower three gigahertz band, which is occupied by the Department of Defense. The Department of Defense typically does not like to give up spectrum that it's using. So you'd need some sort of complex sharing regime in place in order for that to work.
It just sounds like that's going to be a heavier lift. Great. Ben Soff, I'd love to get your thoughts on some of the things you learned at the conference, one of which is probably some deregulation.
I think we talked about that quite a bit at the conference. Yeah, definitely. So as far as the broadcasters, there were two key themes coming out of the conference.
The first was the regulatory expert panel. They were optimistic that the new FCC would pursue deregulation in support of local media. We also heard some major pay TV operators, which sounded constructive that video subscriber declines could continue to moderate this year.
That would be a positive development for broadcast business fundamentals. So let's get into the deregulation potential. So there's the 39% threshold, max threshold that any particular operator can have in a market.
Could that change? And if that does change, what does that mean for broadcast media overall? Yeah.
So broadcast is a heavily regulated industry. It dates back to a time when that was the main platform in the country for news entertainment, well before streaming social media and the internet had taken off. These rules include, as you mentioned, a 39% cap on national ownership for any broadcaster.
The industry has tried and failed in the past to repeal this rule, but there's optimism that the new FCC could facilitate a changing of that rule or getting rid of it entirely. That would allow greater consolidation in this space, which is really important because the industry is facing secular headwinds in pay TV declines and more scale would help the businesses navigate that environment. So speaking of that, you said you're starting to hear some thoughts around or some rumblings around pay TV declines, at least moderating.
What do you, what'd you get from that? Yeah. So cord cutting has obviously been going on for the last 10 years.
People are switching to streaming or other services. We've seen the pace of that decline moderate in the last couple of quarters, and there's optimism that that could continue this year as more cable companies rebundle video with broadband and mobile and launch skinnier bundles that focus on news and sports, which are what consumers really want. So if people can get skinnier bundles and better deals, we think the pace of cord cutting could slow and companies that rely on the base of pay TV subs to earn revenue, such as the broadcasters would see a benefit.
Got it. Matt Nicknam. So your companies are at the center of a lot of different technologies from your data centers and telecom equipment, AI being one of the prominent ones.
So we'd love to get your thoughts on what you learned from the conference and anything specific around AI. Absolutely. Yeah.
So I'll highlight three key points as well. First and foremost, we actually thought the tower companies were the most incrementally positive. All three that we hosted cited an uptick in carrier application activity on towers as 5G network densification starts to take hold.
Secondly, on the data center front, commentary there remained pretty healthy in spite of recent investor concerns pointing to still elevated leasing demand across both cloud and enterprise customers with an ongoing supply demand imbalance driving a firmer pricing backdrop. And the last point I'll mention is from an investor sentiment and positioning perspective, we're starting to see investors increasingly positioned a little bit more cautiously ahead of a potential macro downturn, which starting to favor the towers relative to data centers, which have been pretty well loved over the last 18 months given enthusiasm around AI. Okay.
So let's get into the tower companies with the demand starting to pick back up. You said 5G densification. Can you just unpack that a little bit more?
Of course. Yeah. So if you look at the network technology cycles and evolutions, 3G, 4G, 5G, these typically last a decade.
Now, if you cut that decade in half, we start off with more coverage investment. That typically gets, the baton gets passed more towards densification and we're beginning to see that. And so we got out with a pretty strong bang at the start of the decade with 5G coverage deployments across the three nationals as well as a new entrant.
What we're starting to see now is a resumption of activity after a lull that had taken hold in the last 18 months. And that's benefiting in terms of increased application activity and it should translate to more incremental leasing in the quarters ahead. Got it.
And then we have to go a little deeper into the AI side of it with DeepSeek and some of the worries around the intensity, the spend intensity going forward. What did you get from some of the companies that were at the conference? Absolutely.
Yeah. So demand is actually still fairly firm. And as we think about data center REITs, it's really a matter of supply and demand.
And so if we think about still elevated demand amidst a pretty tight supply backdrop, and when we think about supply, it's power constraints, it's record low vacancies, and it's backlogs entering the year that were at record highs, there's actually fairly strong visibility for data center REITs that we cover. Now the debate I hear from a lot of investors is what happens in 26 and 27 and do cloud players maybe pare back or become a little bit more tempered around enthusiasm around AI investment? That's still up for debate.
But as it relates to my names in the data center REIT space, a fairly strong supply demand backdrop, which should enhance both top and bottom line visibility. Great. So let's move over to the internet side of the conference with Lee and Ben.
So maybe Lee, let's start off with you. What did you pick up at the conference? Yeah.
So despite what was a really strong close to the year for most of the companies in our coverage amongst our e-commerce coverage, expectations for the health of consumer spending in 25 were fairly subdued with no real improvement anticipated relative to the challenging backdrop that corporates faced in 24. Thus, with limited underlying consumer spending growth, companies are looking to press share gains in order to drive better relative growth. To that end, flexibility across the P&L was going to be paramount as companies drive efficiencies in certain areas, particularly on fixed costs, in order to free up capacity to invest against these share gains.
Share generative AI is a growing priority into 2025, both as a means of driving the room for this necessary investment capacity, as well as through innovative customer experiences that remain vital in convincing the cash strapped and discerning consumer to part with any dollar that may be deemed discretionary and thus drive relative share gains. Got it. And before I get into some questions, maybe Ben, what were your key themes from the conference?
Well, I think it's undeniable to just look at the time period that we were there. The stock market was in disarray at the time. So naturally, in all the meetings that we sat in, the first question was around the health of the macro environment.
And so within our coverage, every company has slightly different exposure to the macro side of things. So for instance, when they're talking to the folks that match, the question was, hey, how is sort of, you know, your most susceptible revenue stream looking in this current macro environment? A big, big, big theme there.
At Reddit, likewise, you know, to the extent, you know, if you're looking at where Reddit sits within sort of the demand funnel or the advertising funnel, it sits sort of in the middle, right? Right at the top, you have brand, which is very, very susceptible to macro swings. At the bottom, you're at the performance end of the skew.
And that's most, let's call it insulated. And you know, with Reddit, it seems early signs so far was that relatively insulated from what's going on. There's a big disconnect between what's going on with the stock market and actually what's going on from the fundamental side of things.
Zillow is another company that was there that was looking at, you know, obviously a much longer sale cycle when you think about buying a home. But early indications were that things were fine as well. So macro was front and center with most of our names.
And I'd say, yeah, I mean, there are a lot of idiosyncratic company-specific questions, but that was, I'd say, the umbrella that sort of, you know, that everyone was looking at in terms of, hey, how is the underlying macro environment? Yeah. Given the conference was March 10th, 11th, and 12th, that was really in the throes of some market volatility.
So I think those are some important questions. And Brian, as you started off the conference, you talked about some ad market softness. Can you just go and maybe just a couple of data points you picked up along those lines?
Sure. Yeah. So as I mentioned, two companies in the digital and terrestrial audio space.
So one is iHeart. iHeart obviously has a digital business through iHeart Radio, as well as their stations. They have a terrestrial business. And they said that they started to see weakness in February.
And they didn't indicate that it's gotten any better. So I think that that's persisting. And SiriusXM, they own Pandora, which is also a large digital audio platform, domestic.
And they started to see weakness in March. Their February sounded like it was actually okay. But March, they indicated they started to see some weakness.
So it's too early to tell if it's the beginning of a trend or if this is just a short-term pullback among some of their clients. And maybe it's not showing up at other sellers of advertising. But it's definitely macro related.
It's related to just economic uncertainty. And I think the direction of travel from here will be dictated by business confidence and consumer confidence. Okay.
Well, guys, I really appreciate you joining me today. I was down at the conference. Hard to leave sunny Palm Beach to come back to New York.
But it was another really great conference. So thanks for joining me again on The Pod today. And you've been listening to PodZept.
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