Emerging Markets Telecom Stocks for Income and Growth
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The telecom sector is not precisely considered a high-growth business. Competition is tough and many markets are mostly saturated, especially in developed countries. But when looking at emerging nations, things are clearly more exciting: penetration levels are much lower and businesses like data connectivity are still growing strongly. Besides, the particularities of emerging countries and the high level of regulation in the industry can make the competitive landscape more stable for telecom companies in developing nations.
In Brazil, for example, Telefonica Brazil (NYSE: VIV) merged its fixed and mobile operations last year, and the same company now provides fixed line services in one of the country's biggest and most important regions, Sao Paulo, while covering the whole country with its mobile network. The company has 10.9 million fixed lines in service, 3.7 million broadband clients and 0.7 million pay TV clients. The mobile business, which was created by the combination of five different operators using the same VIVO brand, has more than 75 million subscribers.
The restructuring, which took place last year, has allowed Telefonica Brazil to bundle its different services in order to achieve more efficient pricing and increase retention rates. Having the best mobile network in the country when it comes to dropped calls and customer satisfaction ratings, Telefonica Brazil is in position to benefit from the mobile connectivity boom over the long term. The company is in very strong financial shape, and it pays a handsome 4.3% dividend yield, which should be an extra positive factor in a context of ultra low interest rates.
The telecom sector in China is heavily regulated by the government, which has even mandated the main player in the sector -- China Mobile (NYSE: CHL) -- to use a less efficient TD technology than the one employed by competitors like China Telecom and China Unicom. But China Mobile has been investing heavily in 3G and 4G technologies and seems to be ready to commercialize the iPhone 5 once it becomes available in China. This should close an important gap that's hurting China Mobile because both China Telecom and China Unicom are already offering iPhone products.
Even against regulatory headwinds, China Mobile is by far the biggest player in the country with a market share near 60% and more than 670 million customers. China is obviously a very attractive market in which the company has built a very strong competitive position, and being much larger than its competitors, it has the possibility to launch lower priced services because it has lower costs per customer due to its tremendous scale. China Mobile carries a 4% dividend yield.
Telekomunikasi Indonesia (NYSE: TLK) is the largest integrated telecommunications provider in Indonesia. It is the principal provider of fixed-line services in the country, and its 65%-owned subsidiary, Telkomsel, is the largest wireless carrier in the country, with about 46% market share. Indonesia has been one of the best countries in terms of economic performance over recent years, and it’s becoming a center of attraction for global corporations due to competitive costs and a friendly business climate.
The competitive landscape in Indonesia has been getting more dynamic due to deregulation during the last years, and Telekomunikasi seems to be capitalizing its opportunities. The company raised its expected subscriber addition for its wireless segment in January. Telekomunikasi is now anticipating its wireless subscriber base to reach 115 million in 2011. This indicates a year-over-year growth of more than 22%, much higher than the company’s earlier projection of 10%-12%. Telekomunikasi has a 3.5% dividend yield.
Telecom stocks are considered safe and stable companies with juicy dividend yields, and that makes a good definition of many stocks in the sector. When looking at emerging markets, however, we can find companies with better growth prospects in spite of some extra risks due to regulatory uncertainties.
acardenal has no positions in the stocks mentioned above. The Motley Fool owns shares of China Mobile and Telekomunikasi Indonesia (ADR). Motley Fool newsletter services recommend China Mobile and Telekomunikasi Indonesia (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.