Friday, June 4, 2009

Volume 3, Issue #47

Also in Today's Issue...

When it comes to investing, there are almost never any guarantees or absolutes. But I can give you one iron-clad, take-it-to-the-bank prediction -- wireless communication is going to throw off buckets of profits over the next few years.

I'm not exactly going out on a limb.

Across the globe, the world's nearly seven billion inhabitants have different customs, hobbies, religions, and lifestyles. But we all like to stay in contact with friends and family -- it's a common link that binds us. And with the shackles of wires thrown off, mobile phones have evolved from an expensive novelty to an indispensable piece of hardware.

Polls show that over 90% of consumers would happily give up dishwashers, microwaves, televisions, and most other luxuries before they would live without their cell phone. Rarely do billions of people speak in one resounding voice about a single product or service.

But when they do, it's always a good idea for investors to heed the message.

The Final Frontier
It wasn't that long ago when mobile phones were bulky machines with spotty reception carried by less than 1 in 200 people. Of course, the world has changed quite a bit over the past 20 years. Today, there are more than 3.9 billion of these sleek, personalized devices in operation -- about one out of every two people worldwide.

Here in the United States, penetration rates are currently approaching 90%, up from less than 50% in 2003. And many of our neighbors in Western Europe and Asia sport rates above 100% (meaning some people have more than one phone). For example, Hong Kong's 6.9 million citizens own 11.4 million phones -- a sky-high penetration of 163%.

This saturation means the hyper-growth rates of the past are over in most developed markets. Still, there will always be healthy demand for upgrades and replacements (more on this subject later). For now, keep in mind that many emerging markets represent a vast ocean of untapped potential, all teeming with fish to catch.

One study by Tariff Consultancy has forecast that the number of mobile phone subscribers in 34 key emerging countries will double from 2.1 billion today to 4.3 billion by 2013. Led by explosive growth in markets like Iraq, Cambodia and Indonesia, these countries could soon represent about two-thirds of the world's wireless phone users.

In absolute terms, China will remain a key growth driver for the industry. Penetration rates are still below the 50% mark, meaning a majority of its 1.3 billion citizens are still up for grabs. But that is changing quickly. In fact, roughly 4 million mobile phones are sold in China every day.

So it comes as no surprise that China Mobile is signing up 7 million net new customers each month and now has a subscriber base nearly 500 million strong.

Meanwhile, with over 10 million new wireless accounts activated each month, India has seen penetration rates jump from 8% in 2006 to nearly 30% today -- and urban centers like Mumbai are even more densely connected.

But the next big catalyst will be Africa, where many regions are skipping landlines and going straight to wireless. In fact, more than twice as many Africans are connected via mobile than traditional land phones. And considering cell phone towers are less expensive than rolling out cable to remote areas, I expect wireless infrastructure to remain a key spending initiative for many African governments.

Consumers Trading Up
According to Portio Research, Africa is forecast to see robust annual subscriber growth of +13.3% over the next five years, followed closely by Latin America and the Middle East. At that rate, roughly 80% of the world's population will be wireless by 2013.

Eventually, we'll hit a point where most of the raw growth opportunities will be exhausted -- although the ride will be fun while it lasts. But even then, ongoing technological advancements will keep most users upgrading frequently to take advantage of the latest styles and features.

As you probably know, mobile phones have branched out considerably from their humble origins. Digital cameras, MP3 players, GPS navigation and other functions have been seamlessly integrated into one portable device. And the widespread rollout of third-generation (3G) networks has accelerated the adoption of mobile broadband internet service.

So if you want to check your email, get a stock quote, or see the highlights from the big game while sitting in the airport, it's only a button away. And thanks in part to generous subsidies from retailers, these "smart" phones are surging in popularity. In fact, more than 170 million units were sold last year -- and that total is expected to jump to 192 million in 2009.

Once reserved for business executives and other professionals, these high-end phones can now be found on grade-school playgrounds. They already account for nearly one-fifth of all mobile phones, and even pessimistic projections point to +15% or better annualized growth in the years ahead.

Clearly, this has been a boon for manufacturers like Apple (Nasdaq: AAPL), maker of the trendy iPhone. But with millions of customers signing up for expensive data plans and other premium services, the transition will also lead to stronger average revenues per user (ARPU) for wireless carriers.

We've thrown out a lot of facts and figures today. But understand these aren't just interesting stats -- they are translating into big opportunities for telecom firms.

There is one fund in particular that has positioned itself to take advantage of the growing demand for wireless services worldwide. By focusing primarily on the most explosive markets, the Emerging Markets Telecom Fund (AMEX: ETF) looks promising, but is probably best suited for risk-tolerant investors. It has been the number one telecom fund for the past three years and is already roaring past its competition in 2009. I will be monitoring this fund as a candidate for the "Global Growth" Portfolio in The ETF Authority newsletter.


--Nathan Slaughter
Editor
The ETF Authority

Editors Note: Nathan's "Global Growth" portfolio is up +28.7% since December 2008. Make sure you don't miss the next +43.5% winner, subscribe to The ETF Authority today.

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