(B)(N) Extreme Economics – World Telecoms & Telekoms

Hello?

Drama. We didn’t think that we were going to do “World Telecoms” (yawn) but our friends on TheStreet have told us that the telecoms are the low volatility solution to earn an income from high dividends in choppy and uncertain markets (TheStreet, July 13, 2015, 7 Solid Dividend Stocks to Bolster Your Portfolio in a Volatile Market).

And the World is not going to stop talking and what would we do at the office without our Internet which we didn’t have twenty years ago and that’s what telecoms and telekoms are really all about – the Internet and how to get it.

But the fact of this industry in the US and Canada is that its revenue growth is slowing down and that its earnings are about 8% of its sales revenue and its dividends are more than 80% (93% on a market capitalization basis) of what it earns and it’s beginning to look like a “utility” such as gas and electricity (or SaskTel which is a “Crown Corporation” in Canada but competes with the others for new business) rather than an “exciting, world-beating, growth industry of the new essentials” which it was for a while from 1990 through 1999 and the first ending of the “dot-com bubble” and we’re now in the middle of the second one.

Nor is it any harder than in any other market to earn dividends and make capital gains and avoid capital losses but absent takeovers, there isn’t that much to gain in this market in the US and Canada which is “slow growth” – there are only 400 million people in it and less than 10% of the World’s population and most of us already have telephones and internet connections and the latter (the Internet) is rapidly replacing the need for any telephone.

Figure 1: Hello! America!

The aggregate market value is up +50% since 2012 but unlike the volatility-challenged investors above, we like volatility – bring it on – and we’re still able to pull-out +100% or so (more than doubling our money) from this “flat” market by working the (B)-class portfolio against the volatility-driven investors who are also in it; please see Figure 1 on the right (and click on it and again to make it larger as required) which also explains why volatility is our friend and not our enemy and why it’s an important function of successful capital markets.

However, the current challenge for this industry in North America is to move to wireless broadband (4G LTE and 5G) which is now competitive with landlines (DSL) and cable and even optical fibre for most people and it’s a new technology that favors the well-capitalized new entrants in Southeast Asia, Africa, and South America, and the Europeans are already on top of it and there are many barriers to entry for the North American industry including language and culture and we can’t ignore the trust and security issues that are affecting all of the networks wherever they are (Forbes, July 28, 2015, Congress Holds The Key To More Broadband Competition).

Moreover, when we say that “there isn’t that much” (and there are “problems”; please see Figure 1 above) we’re challenged to find out where there is more and since capital gains are easy to get in any market, where there is more income sustainable for a long time and we found that World Telecoms & Telekoms is an industry that is at least as compelling as oil & gas (please see our Post “(P&I) Extreme Economics – World Oil (The Company)” and there’s a turf-war going-on between (and among) governments who sell and license the electromagnetic spectrum and bandwidth and large and small operators who are trying to buy and keep a piece of it.

And where there’s a “war”, there’s always lots of loose money with no owners.

And the other bracing fact of this industry is that about 2/3rds of the current 75,000 global networks (ASNs) are now seated outside of North America and the market value of these telecoms and telekoms exceeds that of World Oil and it’s a growth industry that’s pivotal to any emerging economy – no “talkie” just “walkie” – because there’s plenty of oil and gas, copper, gold and silver, wheat, bananas, rice, and coconuts (for example) in the World and we can find it all on the Internet.

The Market Ecology for World Telecoms

Telekom Austria – JetStream Network

Our job, basically, is to synchronize all of the traffic lights and traffic cops at every corner in every city and town in every country, and we haven’t done that yet but Telekom Austria, for example, is working on it and it’s not alone; please see the map on the right.

The World appetite for bandwidth, information, and communication is without bound and we want the service at quantum-speeds that is available everywhere and all of the time which we don’t have yet and new technology has already re-created this industry several times since 1990 (GTB Global Telecoms Business) and there was nothing like it before; moreover, when we think about this business, we need to think that it’s the “World Nervous System” connected to the brain, muscles, and bones because nothing moves without it anymore.

We also need to distinguish World Telecoms and Telekoms from the companies that make “electronic jewelry” such as Apple Incorporated and Samsung and the legions of their imitators and the service add-ons that are largely “entertainment” and advertising and subsidize the fast, high bandwidth broadband communications that are provided by the networks on a fee-for-service basis and which would be a lot more expensive and more exclusive but for these users and their appetite for “apps”.

FASTER (60Tbps) than 10 million cable modems.

Try to imagine a World in which energy is plentiful, cheap, and everywhere and broadband is free and that’s what’s happening (Forbes, August 12, 2014, Google Invests In $300 Million Underwater Internet Cable System To Japan).

There are about fifty-five companies in the World Telekoms (outside of North America) and their current market value is $1.6 trillion which is more than twice that of the North American Telecoms ($733 billion) and when combined it is about the same as World Oil (The Company $2.3 trillion) and the total earnings are about the same ($123 billion versus $136 billion for World Oil) but the aggregate dividend yield is less (2.7% versus 4.2% for World Oil although the market price for World Oil is down about 20% from last year) but if we run the (B)-class portfolio in the World Telecoms & Telekoms, the expected return is in the triple-digits (+160%) in the last three years and more than twice the return on our World Oil portfolio (+66%) using the same methods and even under conditions of lower volatility– so Hello! World!; please see Exhibit 1 below for further details (and click on it and again to make it larger as required).

Exhibit 1: (B)(N) Hello! World Telecoms & Telekoms

Figure 1.1: (B)(N) Hello! World Telecoms & Telekoms

For more information and examples on the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

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Disclaimer

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