Professional Investor: Here is the network news – and it's good
Saturday 19 July 2008
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
Co-operative Energy looks to future with User Chooser
Bare necessities of life cost a pensioner £10,000
Employees will be able to request flexible hours in drive to make workplaces family friendly
The 10 Best money-saving sites
Credit unions to offer instant online approvals as ministers clamp down on payday loans industry
- 1 Howard Jacobson: Let's see the 'criticism' of Israel for what it really is
- 2 Instagram of US airport security chiefs: Lipstick knives and IED training kits among items seized
- 4 PornHub begs users to stop uploading video clips of Brazil getting beaten 7-1
Sustained immigration has not harmed Britons' employment, say government advisers
British jihadist calls for 'flag of Islam' over Downing Street and Buckingham Palace
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
There’s a nasty smell in the political air – and it’s coming from the Tories
iJobs Money & Business
£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...
£60000 per annum: Harrington Starr: A leading provider in investment managemen...
£600 - £700 per day: Harrington Starr: AVS, JVS Openlink Endur Developer JVS, ...
£30000 per annum: Harrington Starr: A global leader in trading platforms and e...
Day In a Page
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay