Telecommunications on the Stock Market
Telecommunications on the Stock Market
These are interesting times for the telecommunications industry. The days of the single bakelite telephone with the old-fashioned ring tone are long gone. With UK telecoms revenues close to £50 billion in 2005, this industry now covers land lines, mobile phones, broadband Internet connections and a whole host of services accessed through the ‘net.
The industry regulator Ofcom (The Office of Communications) reports that there are now over 65 million ‘active’ mobile phone subscriptions, 34 million land-lines and over 11 million homes and small businesses with an Internet ‘broadband’ connection in the UK alone.
The
The stock market Industry Classification Benchmark (ICB) neatly divides the UK telecoms industry into two sectors:
· Fixed Line Telecommunications. Providers of fixed-line telephone services, including regional and long-distance. Includes network operators as well as companies engaged in the Research & Development of telephone technology.
· Mobile Telecommunications. Providers of mobile telephone services, including cellular, satellite and paging services. Again, this includes network operators as well as R&D companies.
Of course, many of the firms involved provide both fixed and mobile services – and the industry further sub-divides into wholesale and retail operators.
Our definition also excludes some companies which are closely linked to the industry - such as the mobile phone retailers, which are classified under ‘Retail’ - and businesses offering Internet access, which form part of the ‘Software & Computer Services’ sector.
Current Market Factors
This is an industry that is being driven along at break-neck speed by the latest technology. So the factors affecting the success or failure of the companies within this sector tend to relate to technology, its acceptance by the public and the actions of the industry regulators:
· Growth of the UK telecoms industry. Ofcom report that revenues in the overall telecoms industry have grown from £39.3 billion in 2001 to £46.6 billion in 2005 – spurred by customer growth in the mobile sector and the sale of new services & equipment.
· Saturation of the mobile phone market. There are now 65 million ‘active’ mobile handsets in the
· Overload of the Internet infrastructure. Several of the mobile operators are now trialling ‘mobile TV’ using 3G, DVB-H and DAB technology, whilst there are a number of other companies testing IPTV (television over the Internet). These innovations raise the spectre of ‘bottlenecks’ in the core Internet structure, which was not designed for such heavy traffic.
· Convergence of the communications technologies. Over 50% of
· Death of the land-line. The advent of ‘Voice Over Internet Protocol’ (VoIP) increasingly offers a cost-effective digital alternative to analogue telephony – and there have now been over 286 million downloads of Skype (one of the most popular VoIP services) around the world. We are also seeing increasing numbers of young people completely replacing their land-lines with mobile phones - 10% of households now have a mobile but no land-line at all (news release: 10/08/2006)
· Increased regulation. The EU is proposing regulations to cap mobile charges in a variety of areas, including international ‘roaming’ rates. The average retail charge for a European residential ‘roaming’ call stands at €1.15 per minute. Roaming accounts for 5.7% of all EU telephone operator revenues – so the impact of the proposed 49 eurocent per minute cap could be momentous. Faced with this threat, some EU operators have already announced price cuts (news release:
· M&A activity. The second half of 2005 and early 2006 has seen a raft of mergers and acquisitions that have reshaped the
· NTL/ Telewest/ Virgin Mobile - NTL announced an agreed bid for Telewest in October 2005, which was completed in March 2006. The new Group subsequently announced a £919 million bid for Virgin Mobile, which will create the first ‘quadruple play’ service, offering fixed-line and mobile telephony, TV and broadband Internet (news release: 04/07/2006)
· BSkyB buys Easynet - completed Feb 2006 - Easynet is a ‘Local Loop Unbundling’ (LLU) operator. The purchase gave Sky high-speed broadband access to around 6m
· Cable & Wireless acquires Energis – completed early 2006 – cements C&W’s position as the
· Telefonica buys O2 – completed January 2006 in a deal worth £17.7 billion – gives Telefonica 16 million
· Plus a host of less well known transactions - May 2006: Vodafone acquires Turkish mobile operator Telsim for $4.55 billion. Aug 2006: BT acquired Counterpane, a US Internet Security company. Sept 2006: Pipex Communications buys the
The Telecoms Pyramid
There are 38 telecoms companies with a primary listing on the London Stock Exchange. The structure of the
|
Market |
Capitalisation |
No. of Listings |
|
Main Market |
Large cap shares (FTSE 100) |
2 |
|
|
Mid cap shares (FTSE 250) |
3 |
|
|
Small cap shares (FTSE All-share excl. FTSE 350 + Fledglings) |
5 (4 SmallCap + 1 Fledgling) |
|
AIM |
|
28 |
To put this dominance in perspective, the joint market capitalisation of the two largest companies - Vodafone Group and BT Group - accounts for 93% of the capitalisation of the UK telecom industry, whilst the thirty smallest companies account for just 0.75%.
Vodafone Group is the industry behemoth with 16 million customers in the
Vodafone Group reported an operating loss of £14.08 billion for the year ended 31 March 2006, against a profit of £7.88 billion the previous year. The Group’s share price rose 10.4% in August thanks to strong quarterly figures for its Italian and Spanish operations and an outsourcing deal with EDS and IBM (news releases: 03/10/2005, 05/10/2005).
|
Top 10 Telecom Companies |
Market Cap £ mil |
|
VODAFONE GROUP |
70,889.30 |
|
BT GROUP |
22,286.26 |
|
CABLE & WIRELESS |
3,232.93 |
|
INMARSAT |
1,735.42 |
|
COLT TELECOM |
848.06 |
|
|
317.78 |
|
VANCO |
314.98 |
|
PIPEX COMM. |
243.25 |
|
THUS GROUP |
240.41 |
|
TELECOM PLUS |
98.95 |
Source: LSE 29/09/2006
BT Group is the
BT reported operating profits of £2.5 billion for the year ended 31 March 2006, vs £3 billion the previous year. Revenues were up 6% to £19.5 billion, which included ‘new wave’ revenues of £6.3 billion (news release: 27/07/2006).
It has been a turbulent year for Cable & Wireless (C&W). The venerable company - established as the Eastern Telegraph Company in 1872 – reported an operating loss of £121 million for the year ended March 31, due to falling revenue from fixed-line telephony (news release: 25/05/2006).
C&W has recently announced it is to refocus its broadband services on wholesale services for major business clients (news release:
Inmarsat is a satellite communications company, providing mobile phone, fax, data and broadband services to the shipping and aviation industries. Inmarsat reported a slight fall in revenues for the six months to 30 June 2006 - although its share price rose a solid 12.5% in the first ten months of 2006 on the back of Ryanairs selection of the Inmarsat product SwiftBroadband to support future in-flight mobile phone services (news releases: 04/08/2006, 31/08/2006).
Pipex provides telecoms and IT services, including domain name registration. Pipex recently announced a joint venture with Intel to trial a Wi-Max network in
Telecoms on the AIM
Almost three-quarters of the companies in the
Spectrum Interactive operates internet kiosks, payphones and wi-fi hotspots in airports, hotels and train stations. The Spectrum Interactive share price soared 76% in October after the Group was awarded a new Internet kiosk contract by airport operator BAA (news release: 18/10/2006).
Smart Telecom of
As is often the case, two keywords apply to AIM-listed telecoms companies – variety and volatility!
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