Professional Investor: Here is the network news – and it's good

At Newton, we believe in looking at investments on a global basis, with the focus for our global analysts led by our global themes. One such theme is Networked World. The use of networks remains relatively low and only now, as the devices and applications become more readily available, are we seeing rapid growth in network usage. It's a trend that can have profound benefits for many industries, with telecommunications being at the forefront.

A simple look at some of the current trends demonstrates the effect now happening. Research by Bernstein highlights that an Apple iPhone consumer uses 10 times the amount of data that a BlackBerry consumer uses. Yet a dongle (wireless internet for your laptop) consumer uses 10 times more than the Apple user. The clear message here is that the demand for the data and applications exists, and as the ease of access and use improves, the demand follows.

People want to get connected, and as the prices of these devices falls, the take-up is also accelerating. Carphone Warehouse has seen weekly unit sales of mobile broadband connections go from fewer than 1,000 per week to more than 7,000. This isn't simply owing to phone prices falling, but lower prices for all devices – laptops are now available at £200.

The impact on revenue growth for the companies is very meaningful. In Australia, Telstra has seen mobile services revenue growth rise from 4.7 to 13 per cent in just 12 months after the launch of its 3G service. In Europe, data traffic quadrupled in 2007, and data traffic is now almost as large as voice traffic in Europe.

Yet the trend is only just beginning, as penetration rates remain low. Vodafone, for example, has only 5.8 million data users compared to its 250 million subscribers worldwide, and only 20 million out of 100 million in Europe. Trends from around the world also point to the potential, with data revenue generated per user in the US 20 per cent higher than that generated by users in Europe, while still growing twice as fast.

It's a global trend, too, with usage adapting to each country's needs. In the West, it's internet surfing, emails, videos and such like, whereas in Africa the mobile network is used for applications the West already has infrastructure for, like virtual banking. With a lack of ATMs and banking infrastructure in developing countries in Africa, the mobile device is being used for transferring money from towns to villages and people to people. In the developing world, data and voice are growing hand in hand, with emerging market voice minutes growing 32 per cent year on year in 2007.

However, in many areas of the world, in spite of the fact that the networks are largely already built, usage of them remains low. Currently, only 20 per cent of Vodafone's European network is being used – evidence that as the usage increases, the operational gearing in terms of profit growth is significant.

And this is the important part. A few years ago, building out these networks proved very costly and ultimately premature, with the devices able to make use of the network still not in circulation.

However, in spite of the writedowns, the balance sheets have returned to health and the previously dormant networks are starting to fill up. Most crucially, the returns are now really starting to come through. Indeed, the trend in network usage is so irrefutable that the incumbent fixed-line operators are being forced to respond by investing in building their own networks to rival the Vodafones and Telstras of this world. Only this week, BT announced the investment of £1.5bn in a fibre network to deliver data applications to consumers. It will take five years to build, and BT will be playing catch-up as some companies are already benefiting.

You would think, with such strong trends developing, that the companies involved would be reflecting this theme in their valuations. Not so. At 150p, Vodafone is trading on 10 times earnings and a 5.5 per cent yield to March 2009.

Telecoms on a global basis are not fully reflecting the strength of this theme, so providing investors with a potential buying opportunity. At Newton, we have exposure to many of the stocks set to benefit, like Vodafone, MTN in Africa and Millicom in Latin America and Africa. Others are also waking up to the potential, with India's Reliance Communications starting talks with Africa's MTN to join forces. Newton is already there.

Nick Clay is manager of the Newton Managed Fund. Sean O'Grady is away

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
News
peopleGerman paper published pictures of 18-month-old daughter
Arts and Entertainment
'A voice untroubled by time': Kate Bush
musicKate Bush set to re-enter album charts after first conerts in 35 years
Life and Style
tech
Arts and Entertainment
Robin Williams' life story will be told in a biography written by a New York Times reporter
arts + ents
News
i100
Life and Style
food + drink
Life and Style
Voices
voices
Sport
Roger Federer is greeted by Michael Jordan following his victory over Marinko Matosevic
tennisRoger Federer gets Michael Jordan's applause following tweener shot in win over Marinko Matosevic
News
peopleJustin Bieber accuses paparazzi of acting 'recklessly' after car crash
News
people
Arts and Entertainment
Oppressive atmosphere: the cast of 'Tyrant'
tvIntroducing Tyrant, one of the most hotly anticipated dramas of the year
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Client Services Executive / Account Executive - SW London

    £23000 - £26000 per annum: Ashdown Group: Account Executive / Client Services ...

    PA to CEO / Executive Secretary

    £36000 - £38000 per annum: Ashdown Group: Executive PA to CEO & Executive Dire...

    Generalist HR Administrator, Tunbridge Wells, Kent - £28,000.

    £25000 - £28000 per annum: Ashdown Group: Generalist HR Administrator - Tunbri...

    Management Accountant

    £30-35k + Excellent Benefits: Guru Careers: We are seeking a Management Accoun...

    Day In a Page

    Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

    Kate Bush shows a voice untroubled by time

    A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
    Robot sheepdog technology could be used to save people from burning buildings

    The science of herding is cracked

    Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
    Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

    This tyrant doesn’t rule

    It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?
    Rachael Lander interview: From strung out to playing strings

    From strung out to playing strings

    Award-winning cellist Rachael Lander’s career was almost destroyed by the alcohol she drank to fight stage fright. Now she’s playing with Elbow and Ellie Goulding
    The science of saturated fat: A big fat surprise about nutrition?

    A big fat surprise about nutrition?

    The science linking saturated fats to heart disease and other health issues has never been sound. Nina Teicholz looks at how governments started advising incorrectly on diets
    Emmys 2014 review: Can they genuinely compete with the Oscars

    Can they genuinely compete with the Oscars?

    The recent Emmy Awards are certainly glamorous, but they can't beat their movie cousins
    On the road to nowhere: A Routemaster trip to remember

    On the road to nowhere

    A Routemaster trip to remember
    Hotel India: Mumbai's Taj Mahal Palace leaves its darker days behind

    Hotel India

    Mumbai's Taj Mahal Palace leaves its darker days behind
    10 best pencil cases

    Back to school: 10 best pencil cases

    Whether it’s their first day at school, uni or a new project, treat the student in your life to some smart stationery
    Arsenal vs Besiktas Champions League qualifier: Gunners know battle with Turks is a season-defining fixture

    Arsenal know battle with Besiktas is a season-defining fixture

    Arsene Wenger admits his below-strength side will have to improve on last week’s show to pass tough test
    Pete Jenson: Athletic Bilbao’s locals-only transfer policy shows success does not need to be bought

    Pete Jenson: A Different League

    Athletic Bilbao’s locals-only transfer policy shows success does not need to be bought
    This guitar riff has been voted greatest of all time

    The Greatest Guitar Riff of all time

    Whole Lotta Votes from Radio 2 listeners
    Britain’s superstar ballerina

    Britain’s superstar ballerina

    Alicia Markova danced... every night of the week and twice on Saturdays
    Berlin's Furrie invasion

    Berlin's Furrie invasion

    2000 fans attended Eurofeurence
    ‘It was a tidal wave of terror’

    ‘It was a tidal wave of terror’

    Driven to the edge by postpartum psychosis