Companies that paid billions for 3G mobile phone licenses might finally be starting to see their gam...
Companies that paid billions for 3G mobile phone licenses might finally be starting to see their gamble pay off.
Ben Walker, manager of the Gartmore Global Utilities fund, says: "The new thing in the UK telecoms sector is the success of Hutchisons3, which is getting a lot of market share at the moment. Carphone Warehouse has also reported that sales of third-generation phones are doing well."
Wireless operators are the major focus of Douglas Wight, telecoms sector manager at Martin Currie.
"We are broadly overweight in mobile and underweight in wireline providers for simple reasons," he says. "There is better topline growth in wireless and, unlike some bears suspect, we do not see any pending collapse in earnings as more players enter the market."
Wight points out there continue to be good growth and stable margins in the wireless sector. Meanwhile, he adds with wireline, most of the incumbents have flat or declining revenue.
Walker says this deteriorating wireline trend has also begun to cross the Atlantic. "Traditional incumbents losing market share is a theme in the US as customers disconnect," he notes.
Both Walker and Wight point to increasing competition as a major factor behind this.
"In the corporate market, there is huge competition, particularly in the UK, as telephone companies try to move customers from narrow to broadband," says Walker. "There is also a great deal of competition for retail broadband space."
He also points to the recent decline in mobile phone prices. "We are overweight stocks with considerable wireless exposure," Walker adds. "As this is the sector's growth engine, we are therefore underweight fixed exposure stocks, including BT, which has no wireless exposure."
Walker has reduced his exposure to US stocks including AT&T, which has now become solely a long-distance provider.
Both managers are also keeping a keen eye on regulatory issues, particularly in Europe.
"In Europe, they have yet to open themselves up to the concept of virtual operators like Virgin in the UK," Wight says. "France is a good example of this and a lot depends on how regulators will allow operators to access this growing trend."
Walker concurs, arguing companies are already heavily regulated and if further price cuts are imposed, it could be a problem. He believes opportunities for consolidation are few and far between in the sector.
"Earlier this year in the US, SBC and Bell South bought AT&T," he notes. "This is one of the biggest transactions of the past three years but a lot of companies have reached critical mass and that will dissuade them from pursuing mergers and acquisitions."
On the whole, Wight is largely positive about the sector, which he says looks relatively cheap due to the amount of cash being generated.
This is something Walker also emphasises. "The sector is attractive on price terms relative to the rest of the market," he notes. "Companies such as Portugal Telecom, for example, are offering high dividend yields and returning cash to investors. They are also buying back shares aggressively and cutting costs to offset the decline in fixed-line business."
3G sales rising.
Good growth and stable margins in mobile sector.
Fall in fixed-line business.
Traditional incumbents losing market share.