Arguments

why Telecom Stocks ? 

There are some traits that make Telecom stocks an attractive investment in any economic cycle.

constant demand 

Humans will always want to communicate remotely for business and private purposes.
Be it traditional telephony, VOIP, web-meetings or even in virtual reality spaces.
Also the upcoming human to AI trends requires a solid telecom provider backbone.

constant growth

While voice communication is flat data transfer service consumption is growing enormously by the day. Cisco published a recent study that predicts IP traffic increases 22% every year between now and 2020, data consumption per capita will reach 25GB per Month in 2020.

Telecom stocks a winner in good and bad times

Investing in telecom stocks makes sense in every economic setting.In good times the slew of new internet start-ups and industry growth will create more demand for high speed connectivity. Consider also the big fancy IT trends of our age: Internet of Things, widespread Saas /Cloud adoption, Artificial Intelligence, Machine to Mtable-3achine communication each and every of them requires telecom backbone connectivity.

The analysts at Gartner predict that 6 billion “things” will need a unique IP address and an internet connection. In 2016 5 million new “things” will be connected to the internet each day.

In bad times companies from the SOHO up to the multinational corporate will tighten their belt and reduce business travel in favor of remote communication via web conference.Cost cutting will also favor smart & lean internet based business models who then in turn create demand for more connectivity.

See the appraisal by Morgan Stanley on the trends for Telecom Stocks in 2016.

 

 

Average Revenue per User is stable

ccBusinesses and consumers use their broadband connection for so many tasks e.g. making video calls, watching movies, backing up their PC, streaming music that means they feel the comparably low price they pay for internet connectivity is well justified and not under pressure. Introduction of attractive SaaS based value added services help increasing the ARPU

 

See an overview by Standard & Poors on the trends & challenges in the telecom sector in 2016

 

Enabler of digitalisation

Digitalisation has been the buzzword for last 5 years and yet only a few of the elements of a profound digitalisation shift are evident e.g. Big Data, Cloud Computing and up and coming Artificial Intelligence. Step back from the buzzwords and you see this trend has just started. There are huge efficency gains for companies in all verticals and the foundation for all this is a high speed telecom network.  A good read on the meaning of digitalisation is this report by Ernst & Young.

This video by Morgan Stanley illuminates the digitalisation shifts still to come looking at 2017 and beyond.

 

Government assured

While many incumbent telecom providers used to be government owned in the 19th century they are usually  now released to the stock market or private investors, however governments still keep a tight view on what the providers are doing. A functioning telecommunications network is too important for a nation i.e. too big to fail.

Dividends

Telecom stocks almost always offer decent dividends on a regular basis; that is also one of thecoins reasons why Telecom stocks are the preferred means for national pension funds to park their money. Buy a telecom stock at an
attractive valuation and benefit mutually, share price gains and regular dividend payments.

 

 

Value gain from acquisitions

It is common that one telecom operator acquires other operators to achieve better economies of scale. Especially providers in smaller country’s find it difficult to offer their customers an attractive price as their purchase power is limited. If you are invested in a telecom provider that is an acquisition target you will be very happy to see big gains in short time.

Stable cash flow

Most customers have 24 month fixed contracts with their Telecom provider. This gives a nice predictability to the investor that revenue cannot fall to 0 over night. Changing telecom providers is a hassle nobody likes to go through so even the telecom provider has done something really wrong, customer churn will not be sudden.

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