One good thing that has come from the mixed global economic data is that stock picking finally is working again — “good” stocks are going up, while “bad” stocks are underperforming.
This is particularly evident in a sector like telecoms, where there have been many opportunities in companies that have managed to make the transition from legacy to next-generation technologies, particularly those geared toward the explosion of mobile data traffic.
North of the Border
The largest telecom north of the border, BCE Enterprises (NYSE:BCE), is a case in point. At present, 81% of revenues are geared toward next-gen technologies — wireless (30%), satellite/Fibe TV (10%), Internet/mobile data (25%) and media (16%). Part of the remaining 19% of wireline voice also can be converted if fiber-optic cable covers all landlines.
Management realized years ago the need to invest in next-generation technologies, which resulted in BCE more than doubling its share of the Canadian wireless market, from 18% in 2007 to 39% in 2011.
What is more important, 52% of BCE wireless subs have smartphones today, compared with 34% a year ago. This is causing a 31% year-over-year surge in data traffic, as well as a continued climb in average revenue per user (ARPU). Some day, the vast majority of BCE mobile devices will be smartphones, which allow for numerous commercial activities that never were available with regular cell phones.
BCE has put itself in a position to be the leader in wireless services in Canada, but management also has diversified the company better than most U.S. counterparts of similar size. The company’s sustainable 5% dividend yield offers serous support for the shares at a time when both U.S. and Canadian long-term interest rates are at record lows.
South of the Border
The largest wireless telecom company south of the border is Mexico-based America Movil (NYSE:AMX), which is the second-largest wireless company outside of China with 290 million access lines; No. 1 is Vodafone (NASDAQ:VOD) with 382 million. The Chinese market, by virtue of its sheer size and regulatory structure, has made China Mobile (NYSE:CHL) No. 1 overall with 617 million access lines, and China Unicom (NYSE:CHU) is No. 3 with 329 million access lines.
Right now, Latin America shows mobile market penetration of 100%, and it theoretically could grow past that as many consumers don’t have access to landlines and use one cell phone for business and one for personal calls; there are phones with dual SIM cards available on the market in Latin America so you don’t have to carry two devices.
The opportunity here — as with most emerging-market-focused wireless carriers — is mobile data. This is because America Movil’s target market has only 15% market penetration of mobile data for its customers at last count — a number expected to grow to 30% by 2013.
Increasing the number of smartphones sold also will increase the average revenue per user (as is BCE’s and other developed carriers’ experience), which is the next biggest growth opportunity. This will take time as smartphones typically are not subsidized in most emerging markets, particularly with the more popular (but lower-ARPU) prepaid plans.
America Movil trades at 4.4 times book and about half the valuation it had five years ago. While it is unlikely to grow as fast as it did then, mobile data traffic should be highly beneficial to AMX.