First call is telecoms

What are the hottest global investment opportunities? Edward Russell- Walling introduces this special report with a look at ever-buoyant telecommunic ations

Few sectors in the history of stock market investment have managed to remain top of the pops for as long as telecoms.

State-owned monopoly utilities around the world are becoming private- sector, market-driven growth businesses whose shares can be held by private investors or investment groups specialising in telecoms, or hi-tech, shares. The new "telcos" are also creating a complex web of international shareholdings and, increasingly, full-blown mergers.

The industry now has a global market capitalisation of pounds 500bn and a growth rate two to three times that of global GDP. Even today, some 80 per cent of the world's population has no access to a telephone. Yet a modern, efficient telecoms infrastructure is as basic a need as food, water and health.

Back in the first world, anyone who wants a phone already has one. Here, growth is implicit in growing competition and the roll-out of new technologies. Total deregulation will be forced on European Union telecoms markets from 1998 onwards. To prepare them for competition, operators like Deutsche Telekom and France Telecom will be part-privatised.

The challenge for the larger operators is to avoid being outflanked by new and nimbler entrants as transmission becomes more of a commodity and networks become more intelligent, particularly in data services. Tim Price, president of the US long-distance operator MCI, likes to quote the economist George Gilder: "The once separate streams of computers and telecoms are converging into new floods of innovation. The computer will still be king. But the network will become the computer."

New media such as wireless and the Internet are also commanding attention, both inside and outside the traditional telecoms industry. New wireless technologies include digital cellular, mobile satellite (requiring billions of dollars in investment) and fixed-line communications.

Underlying telephony growth prospects in Asia and Latin America are considerable, however. Jack Grubman, who runs Salomon Brothers' telecoms research team, says that in a model global telecoms portfolio he would be underweight in US and European stocks. He points out, however, that European telecoms shares underperformed their US counterparts by more than 30 per cent last year.

"We would be less underweighted in Europe than in the US," Mr Grubman concludes.

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