Mobile internet only really took off once technology companies found a way to
package it; in the process they are capturing most of the value from its
move into the mainstream.
Apple
Apple is the perfect example, making fat margins on the handsets it makes and
the software they run. Since the introduction of the iPhone in 2007, Apple’s
shares have doubled in value while the global telecoms sector has declined
by about 20 per cent.
But investors should not write off operators’ ability to profit, too, from the
widespread take-up of mobile internet. For years developed market operators
have been forced to compete for customers on price, which along with
regulatory pressure has squeezed revenues and forced them to keep cutting
costs. But there are signs that smartphone users care more about network
quality than tariffs, giving operators the chance to claw back some pricing
power.
There are caveats: investors worry that surging data traffic will force
operators to increase capex to beef up their networks. Even so, that should
help the big old operators with stronger networks regain share from
investment-light nippers that have been undercutting them, such as 3 in the
UK and E-Plus in Germany. In the US, smaller players T-Mobile and Sprint are
already suffering.
Big European operators are hardly growth stocks in spite of their emerging
markets exposure. But they trade at historically high dividend yields (about
9 per cent apiece for France Telecom and Deutsche Telekom and 6 per cent for
Vodafone) and at only about 10 times expected 2010 earnings. Cheap, for
companies that might yet catch that boat.
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