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Telecom Stock Investing

Written By Brian Hicks

Posted July 13, 2009

Telecoms are the way to go. Here’s the proof…

Ernst & Young’s new report, Africa Connected, points out that 70% of the continent’s population south of the Sahara is still living in rural areas. As a result, creating fixed-line service throughout Africa is way too steep a hill for international operators to climb.

But when it comes to beaming text messages, transactions, and of course phone calls over long stretches of unpopulated land, companies like South Africa’s MTN are already on a path to profit.

Mobile phone subscriptions across Africa jumped by 41% in 2008, and foreign direct investment (FDI) in the space is healthy.

Between 2002 and 2007, E&Y says, the mobile phone market in Africa grew by 49.3%, versus just 27.4% for all of Asia.

That growth carries through to stimulate stocks like MTN Group (OTC:MTNOY), which is up 48% in the past six months. MTN is capitalizing as its continent-wide operations expand and new users in the 21 countries where the group does business move in and up the value chain.

New cell phone customers generally come in with lower ARPU (average revenue per user), an industry term that helps companies pinpoint a balance between new service and increasing cost.

Ernst & Young projects African telecom market growth will be best in the world between 2008 and 2013.

That includes low-ARPU subscribers and pre-paid customers as well as high-ARPU ones who are being retained through enhanced services like voice mail and picture messaging.

Behind sub-Saharan Africa is the Middle East, another region where far-flung tribesmen are now increasingly able to move goods and money to and from big cities using the power of a handheld phone.

More than a handful of Middle Eastern countries are expected to achieve double-digit annual growth rates in their telecommunications industries over the next few years, even despite ongoing concerns about developed-country growth.

Check out this chart of the SPDR Middle East and Africa ETF (NYSE:GAF) vs. the S&P 500 and the iShares Europe 350 ETF (NYSE:IEV). GAF, with 10% of its holdings in telecom companies, wallops the old guard economies head-to-head.

middle east and africa etf

That regional growth edge is something you can’t ignore if you want to make money in this market and fight negative numbers coming out of Washington and Brussels.

Telecoms: Linchpin of the African Economy… and a Powerful New Trend

When it comes to telecoms, local growth trends in the Middle East and Africa even buck new IMF forecasts for those areas, which were bumped down at the beginning of July.

That’s because telecoms pack a lot of punch.

For every 10% surge in phone penetration (access), emerging markets can see GDP increase by 1.2%.

The mobile phone, as it turns out, has become the linchpin of the African economy.

But there’s another trend emerging quickly. It’s being unspooled, as a matter of fact, across the sea floor to Africa’s shores.

Four new submarine broadband cables are set to deliver Africa unprecedented telecommunication speed and enable Africa’s telecom operators to bring in more ARPU than ever.

We’re talking about a quickly unfolding future in which continent-wide high-speed data coverage will boost economic growth and make transactions more secure.

Eastern African nations like Rwanda, which was torn to shreds by ghastly ethnic violence less than two decades ago, are in talks to link up to systems with names like EASSy (Eastern Africa Submarine Cable System) and SEACOM.

To Africa’s north, France Telecom is extending a cable system more than 14,000 km (about 8,700 miles) from the Mediterranean down through over 25 countries and all the way to South Africa.

Even in the U.S., broadband access is increasingly seen by policymakers and consumers alike as more than an infotech accessory — home broadband adoption increased by a full 9% from the end of 2007 through this spring, a new Pew research poll shows.

France Telecom (NYSE:FTE), Vodafone (NYSE:VOD), and smaller European players like Portugal Telecom (NYSE:PT) are all easy-to-trade plays on world-leading African telecom growth. . .

Angola, where PT operates, is enjoying annual GDP growth of 20%, and mobile penetration there more than doubled from 2006 to 2008!

Dial in to your favorite one and make sure your portfolio has at least one stock to tap the powerful African telecom growth trend.


Sam Hopkins

International Editor

P.S. – For every connection between phones or computers in Africa, each end of the conversation needs access to the power to make commerce happen. In Green Chip International we’re tracking several companies that provide Africa and other regions with off-grid and secure grid-based electricity to make sure the telecom growth effect becomes a reality. Start taking advantage of GCI’s profit-making emerging market research by signing up for our risk-free trial today.