5 Solid Telecom Investments

By Pamela Kaval - September 21, 2012 | Tickers: AMX, T, CMGE, VZ, VOD | 0 Comments

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Telecommunications has been around for as long as people have existed.  Growing up in New Jersey, I remember the fire station 3 blocks from my house blowing air horns every day to let you know it was 12 noon and that the system was working, just in case they needed to warn us of an emergency.  I also remember that it used to cost a lot of money to call people on the telephone around the U.S., never mind someone in another country, in the 1970s and 1980s (not that I paid the bills back then).  Today, we get automated messages on our phones for emergencies and we can talk to people on the phone cheaply and easily in other states and in other countries.  Not only can we talk to people on the phone, we can also see them on a video call with programs like Skype (Operated by Microsoft), ooVoo, Google Video and Tango. 

My point of all this is that telecommunications has always been, and will continue to be, something people want to do.  I’m not saying that telecommunications will be the same as it is now in 100 years; it won’t even be the same in 10 years.  Transmission devices will come and go, like fire station air horn warnings and rotary dial phones, but people will always communicate and the companies that continue to evolve with the times will endure.  As a result, telecommunications companies can be good investments.

In the United States, AT&T (NYSE: T), the largest mobile and fixed telephone provider in the U.S., has been around since 1885. It was a legal monopoly for much of its existence, until it was broken up in the 1980s. This breakup resulted in 7 “Baby Bells,” of which one was Bell Atlantic.   Of the many strong AT&T competitors, one is Verizon (NYSE: VZ).  Both AT&T and Verizon pay dividends and have similar P/E ratios, but Verizon currently only has about 1/3 of the subscribers that AT&T has (~ 94 million compared to ~ 274 million).  That being said, Verizon was technically part of AT&T at one point in time, as it began in 2000 with the merger of Bell Atlantic and GTE Corp. 

A European organization,  Vodafone (NASDAQ: VOD), has seen the importance of Verizon in terms of telecommunications and now holds a 45% share in Verizon.  Not only does Vodafone have a large share in Verizon, it is also a strong telecommunications company in its own right.  Vodafone currently has approximately 404 million subscribers.  This includes subscribers from two of their acquisitions:  Telsim (Vodafone Turkey) in 2006 and Vodaphone Essar (India) in 2007.  They also have joint ventures in Australia, Italy, and Fiji. 

America Movil (NYSE: AMX) operates in over 18 countries in the Americas, including North America, Central America, the Caribbean and South America.  The chairman of America Movil’s board is Carlos Slim, the richest man in the world in 2010, 2011, and 2012, and one of the world’s most powerful people, according to Forbes magazine.  Slim’s association with America Movil is both an attractor and detractor to investors.  Many people that do not like his affiliations say that the growth of his organizations, which can be considered monopolies, prevents small company growth.  That being said, he does a lot of good with some of his money, according to Forbes magazine, who listed Slim as one of the world’s biggest givers in terms of donations to charities.   Regardless, the stock price of America Movil has risen, on average, 63% annually for the past 9 years.  Its 1% dividend is not as high as some of the other telecom companies, but its stock price increase has more than made up for that.  It's a strong diverse company and will be around for years to come. 

Another company that will be around for years to come is China Mobile (NYSE: CHL), the world’s largest telecommunications organization.  China Mobile has over 687 million subscribers and has 100% interest in over 35 subsidiaries.  They have been ranked in Forbes as one of the world’s biggest companies.  In 2010, they were ranked by Business Week as one of the 50 most innovative companies.  There are also rumors that they will soon make a deal with Apple in terms of mobile phone carrier partnerships. 

Telecommunications will be around as long as there are people.  The companies that will continue to do well will meet their consumers ever changing needs by evolving with the times.  While I cannot make any guarantees, I do believe the telecom stocks mentioned here fit the bill and will be strong long term investments that provide consistent growth and dividends. 

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