What's the impact of tariffs, recession, and tax on telecom stocks?

Citi released a note on the North America telecom operators and telecom infrastructure sector, discussing potential tariff impacts, the looming recession, and tax on communication services and infrastructure stocks.U.S. tariffs are unexpectedly severe and some consequences for the communication services and infrastructure stocks are imminent. Though the firm sees the services and infrastructure coverage as generally defensive, sensitivities and risks to financial performance resulting from higher input costs, especially for capital investment, and from a potential recession, are certainly present.The report states that there might be some respite for international segments on account of lower rates, possible tax reforms, and a weaker USD. While the firm sees the whole sector as defensive overall, specific companies may be more or less defensive than others.The firm is taking a more positive view of Towers as a defensive business model, though analysts note that interest and exchange rates will influence aggregate share price performance.The possibility of a recession introduces an element of dilution risk to the firm’s financial outlook for services stocks, and also to some degree for communication infrastructure. However, the firm continues to believe in the general durability of demand for wireless and broadband services.In the case of services, opex includes labour, internal operating costs, and device subsidies for wireless while most of the revenue is domestic. Forward purchase commitments can bring down the near-term risk to performance. Wireless devices will face higher costs that will likely be passed onto customers, and outside that, the firm estimates annual FCF risk of 8%, which on the low end can get to about 4% if timing and other purchase commitments are accounted for.Discussing recession risk, analysts added, “A recession may weigh on communications services and data center service revenue growth and profitability. For wireless, a recession and potentially higher smartphone costs (from tariffs) could further lengthen the device replacement cycle.”“Comcast’s (CMCSA) exposure to advertising within the Media segment and discretionary spend for Parks elevates its sensitivity to recession scenarios vs. our peer group, although the launch of the new Epic Park should help its share of wallet in the Orlando market in 2H25 and in 2026.” The firm also highlighted that compared with recent years, balance sheets are in a better place, and if the pull-back in the 10-year treasury rate is sustained, future borrowing costs will be lower. The firm views potential tax reform for higher and longer bonus depreciation as a likely benefit that will offset headwinds from capex costs that face higher tariffs.Buy-rated AT&T (NYSE:T) is the firm’s overall top-ranked pick, while Buy-rated American Tower (NYSE:AMT) is moved up in the firm’s ranking to a new top-Tower preference position. In DCs, the firm prefers Equinix (NASDAQ:EQIX) over Digital Realty Trust (NYSE:DLR).