Wednesday, April 1, 2009

Volume 3, Issue #24

Also in Today's Issue...

In one scene of the 1987 Oliver Stone classic film Wall Street, corporate raider Gordon Gekko called his broker on a cell phone from a beach in the Hamptons.

The phone was roughly the size of a brick, and likely just as heavy, but the scene was meant to convey Gekko's wealth and power. Only the richest Americans could afford a cell phone in 1987, particularly one small enough to carry in one hand. In fact, only about 0.5% of the U.S. population owned a mobile or carphone by the end of 1987.

Times have changed. Nowadays, most Americans see a mobile phone as an essential service, not a luxury. In fact, mobile phone penetration currently stands at more than +83%, more than double what it was at the beginning of the decade.

But, believe it or not, the U.S. is relatively backward when it comes to mobile phones compared to other developed countries.  The United Kingdom, like most EU countries, actually sports a cellular phone penetration over 100%. That means that your average consumer owns more than one mobile phone or buys a new phone more than once every 12 months. And if you think that's scary, consider this fact -- the average Briton gets their first mobile phone at the tender age of eight.

And don't assume that the developing world is immune to the global mobile phone craze. While the idea of a rural farmer in China holding a cell phone might seem ridiculous, it isn't. Many developing countries never built the miles of underground and street side copper wire telecommunications networks that exist in the U.S. Compared to laying all that cable, installing a handful of towers is an easy and inexpensive task.

Countries like China and India largely skipped the landline phase entirely -- many consumers switched from no phone at all to owning their first mobile. Current cell phone penetration in China and India stands at 41% and 20% respectively, less than half the average rates seen in the EU and across North America.

Nonetheless, these markets are growing far more rapidly. At the end of 2000, China's cell phone penetration was less than 7% of the population and India's was less than 0.5%. When you consider that both countries boast more than one billion inhabitants, that's an impressive growth rate.

And while developed markets like the U.S. and UK are approaching saturation, China and India still have plenty of room to grow before cell phone penetration reaches developed world levels.

And there's more to the telecommunications industry than wireless telephone calls. In the U.S. and developed parts of Europe phones such as the BlackBerry and iPhone have become ubiquitous; mobile phone users increasingly want their email and Internet services delivered to their phones. And, the new trend is so-called third-generation (3G) mobile services -- users not only want the Internet but they want it at the same speed at they're able to get on their home PCs.

In the U.S., around 15 to 20% of all phones sold are so-called smartphones, devices capable of accessing email and the Internet. Globally, that number is closer to 12%.

But demand for these services is growing rapidly and telecommunications providers can drastically increase their revenues by increasing the number of subscribers signed up to their smartphone services. Globally, smartphone sales are growing at roughly three times the pace of mobile phone sales as a whole and telecom providers earn far more revenue from such customers compared to those buying simple telephone services.

As a result of all this demand, the world's telecommunications firms are remarkably resistant to the global economic recession. Even as consumers cut back on discretionary spending, they're continuing to pay for wireless telecommunications and data services -- these are true essential services much like electricity or water.

Even better, telecommunications companies typically have strong and stable cash flows. That's because once these companies build out their networks and basic infrastructure, there's little additional cost associated with adding new subscribers. Strong cash flow generation allows many of the largest telecom firms to pay out significant dividends to shareholders.

Even better for U.S. investors, in most developing countries there are no more than one or two major telecommunications companies. And given the size and market power of these firms, they're typically among the first to attempt to list on the U.S. exchanges -- these companies often trade as American Depository Receipts (ADRs), making them easy for U.S.-based investors to buy.

With these points in mind, the table below offers a list of some of the largest and best-positioned telecommunications firms located outside the U.S. and other developed countries.

Good Investing!




Paul Tracy
Editor
StreetAuthority Market Advisor

TopStockAnalysts
http://www.TopStockAnalysts.com
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