Tempting Markets

Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Nokia's (NYSE: NOK) emerging market stronghold is under attack from competitors. That's not surprising because it is a leader in very tempting markets. As new entrants join the handset fray, consider looking at wireless providers MTN Group (NASDAQOTH: MTNOY.PK) and Verizon Wireless partner Vodofone (NASDAQ: VOD).

Smart Phone Wars

Smart phones have taken over the handset space in developed markets. This makes complete sense based both on functionality and price. Indeed, these high-end phones can cost hundreds of dollars even after cell phone companies subsidize the cost. Developed markets have the wealth to afford that expense.

Nokia pretty much missed the smart phone market in developed markets, which has led to a disastrous market share plunge in these key areas. While it's teamed up with Microsoft to make its new Lumia smart phone offering, it is clearly playing catch up.

Core Markets

One area in which Nokia isn't playing catch up, however, is emerging markets. About two thirds of the company's sales last year came from Asia, the Middle East, Africa, and South America. To demonstrate its strength in these markets, Bloomberg reports that Nokia has an over 70% market share in fast growing Nigeria.

But that same article points out the problems that Nokia is facing. While smart phones only have a 10% or so share of the market in the country, MTN Group, the largest mobile phone company in the country with over 50 million subscribers, saw data revenues jump over 60% in the first quarter. Smart phones are a large part of that equation.

In Come the Competitors

This is part of the reason why some of the largest handset makers are increasingly focusing on emerging markets. So Nokia is, at the same time, trying to break into the smart phone space in developed markets and defend its share in core emerging markets.

That's going to be a lot for the struggling company to handle. With sales down 40% from their 2007 high and red ink in each of the past two years, investors looking for emerging market exposure should probably switch gears.

Cell Providers

On that front, MTN Group is a good place to start. The company is big in Nigeria, but that isn't its only market. The company has around 190 million customers across 22 countries in Africa and the Middle East. And, according to Bloomberg, it's looking to expand into India. The shares have traversed a jagged sideways course over the last couple of years, with highs in the low 20s and lows in the mid teens.

Meanwhile, the company's top line has been heading steadily higher, though the bottom line is more variable. That trend should remain the norm as it expands, because it will have to keep spending to build out its infrastructure. That's particularly true as it enters new markets. However, as customers in emerging markets increasingly move toward the middle class, MTN looks set to benefit from increased data usage no matter what handset its customers choose.

A Little Less Risk

MTN is focused only on emerging markets, which makes it an inappropriate choice for risk averse investors. That said, Vodafone might be a good option for income-oriented and less aggressive types. Although the big news surrounds its 45% ownership stake in Verizon Wireless, it has a sizable business outside of that one asset.

The Verizon Wireless operations accounts for about half of the company's top line, but it also has operations in developed markets Spain, the United Kingdom, Germany, and Italy. In total, however, it operates in over 30 countries around the world, including India and Africa.

The shares, which yield around 5%, have been largely range bound for a decade. They are toward the high-end of that range. Verizon Wireless continues to perform well, so that's not a problem. Europe is an issue, but one that is well known. Growth is increasingly going to come from emerging markets. As those nations pick up, so, too should Vodafone's results. Its top line, meanwhile, has been trending higher for six years.

With rumors swirling about Verizon buying Vodafone out of their partnership, that could actually be a huge boost to the company. The price tag for such a sale would be in the $100 billion range. That's a lot of money to either give back to shareholders or, better yet, invest in high-growth regions like emerging markets.

If a deal doesn't get done, Vodafone still benefits from owning 45% of Verizon Wireless. That's something of a win win for Vodafone and its shareholders.

Emerging Markets Plays

Investors looking to get into the growth of the cell phone industry in emerging markets should look past the tough competition in the handset space. Cell service providers will benefit no matter who wins that battle. MTN is a high risk play in emerging markets, while Vodafone offers a more balanced portfolio with notable emerging markets exposure.


Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Vodafone. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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