Telecom used to be known as a volatile place to invest. Is that still the case?
I deal with vastly different regions and political regulatory landscapes. Spain, Brazil, and Canada; are all at different points in the growth cycle and have different competitive markets. When I first started covering telecom at the beginning of this decade, the industry was grouped in with technology and was looked at as an aggressive, fast-growing, high-upside industry. That’s not the case now. Telecom has more defensive characteristics now. That’s because the cell phone is now a necessity rather than a luxury. In a recession you’re not going to cut off your cell phone service. I think the investors’ mindset has changed as it relates to telecom.
What caused that shift?
Companies are more stable now. The models are more visible; it’s not difficult to project future revenues, earnings, and margins for telecoms anymore, because they’re not in the early growth phases where they’re trying to borrow lots of money for expansion. They are more shareholder-friendly, doing things like giving money back through buy backs. There’s more visibility. Companies are better run now.
Where are things happening in the telecom space these days?
The most attractive place, for me, is the Canadian telecom market. Why? Competition there is intense, but rational. Companies are not trying to undercut each other on price all the time. They are all happy with the extremely profitable market. There are three strong players—Rogers Communications Inc., Telus, and BCE Inc.—with strong brands. No one is really dominant. I like that the market penetration rate is lower there than in the U.S. It’s 65%. Canada introduced wireless service two years after the U.S., Canada also has one of the most reliable and low-cost landline systems. That’s kept the penetration down. Average revenue per user is higher in Canada than elsewhere in international markets.