The work from home movement, accelerated by the Pandemic has resulted in local and international businesses moving their operations online. The technology sector has benefitted from the increase in demand for technology related services and products with flexible working locations and hours a new normality. Zoom, Microsoft teams and skype to name a few have seen large increases in usage and usage hours, because of working from home. This type of technology requires fast and reliable internet to work effectively and for investors means a potential opportunity within the telecommunication space:
What is the telecommunication sector?
The telecommunication sector is made up of companies that make communication possible on a global scale, whether it is through the phone, internet, the cloud, or cables. These companies created the infrastructure that allows data in words, voice, audio, or video to be sent anywhere in the world and allow products like Zoom, Microsoft teams and Skype to be successfully utilised by the working world. The largest companies in the sector are telephone (both wired and wireless) operators, satellite companies, cable companies, and Internet service providers.
How to gain exposure to the telecommunication sector?
Investors can gain exposure to the telecommunication sector by investing directly into local or international telecommunication companies or gain access to a basket of telecommunication assets through an Exchange traded Fund (ETF).
JSE listed telecommunication companies:
Vodacom Group Limited: Vodacom Group Limited is a South African mobile communications company, providing voice, messaging, data, and converged services to over 55 million customers. From its roots in South Africa, Vodacom has grown its operations to include networks in Tanzania, the Democratic Republic of the Congo, Mozambique, and Lesotho, and provides business services to customers in over 32 African countries, including Nigeria, Zambia, Angola, Kenya, Ghana, Côte d'Ivoire, and Cameroon. Vodacom provides 3G, 4G, and UMTS networks and was the first cellular provider to introduce LTE in South Africa. On 21 October 2015, Vodacom launched its fibre product to the home and in early 2020 the company became the second network operator in Africa to launch a live 5G network, initially available in Johannesburg, Pretoria, and Cape Town.
MTN Group Limited: MTN Group Limited is a South African multinational mobile telecommunications company, operating in many African and Asian countries. MTN recorded 280 million subscribers at the beginning of 2021, making it the 8th largest mobile network operator in the world, and the largest in Africa. Active in over 20 countries, one-third of the company's revenue comes from Nigeria, where it holds about 35% market share. In March 2019 MTN launched a WhatsApp channel to let its customers buy airtime and data bundles through the messaging app. Customers can also check their balances and store their credit or debit cards in the app for future purchases.
Telkom SA SOC Limited: Telkom SA SOC Limited is a South African wireline and wireless telecommunications provider, operating in more than 38 countries across the African continent. Telkom is majority-privatised with it being 39% state-owned enterprise. Telkom provides ADSL retail services via their ISP Telkom Internet to consumer and business customers, and through Telkom Wholesale to other licensed operators. Most ISPs in South Africa, such as Afrihost, utilise Telkom's copper infrastructure for reselling ADSL services.
International telecommunication companies:
For investors there are many companies internationally that offer telecommunication exposure, however a firm favourite of the FNB research team during 2022 is Comcast:
Comcast corporation: Comcast Corporation is an American multinational telecommunications conglomerate headquartered in Philadelphia, Pennsylvania. It is the second-largest broadcasting and cable television company in the world by revenue (behind AT&T), the largest pay-TV company, the largest cable TV company, the largest home Internet service provider in the United States, and the nation's third-largest home telephone service provider. Comcast provides services to U.S. residential and commercial customers in 40 states and in the District of Columbia. As the parent company of the international media company NBCUniversal since 2011, Comcast is a producer of feature films and television programs intended for theatrical exhibition and over-the-air and cable television broadcast, respectively.
South African investors looking to gain exposure to the Comcast Corporation can buy shares directly through a Global stockbroking account.
Exchange Traded Funds (ETF)
Investors can obtain exposure to a basket of telecommunication assets through an ETF: A pooling of funds vehicle that bares similar characterises to a Unit Trust however can be bought and sold directly on the stock exchange by an investor. US telecommunication ETF's can be acquired internationally and include the Vanguard Communication Services ETF, iShares Global Telecom ETF and iShares US Telecommunication ETF:
Vanguard Communication Services ETF: Seeks to track the performance of a benchmark index that measures the investment return of stocks in the communication services sector. The ETF Includes stocks of companies that provide telephone, data-transmission, cellular, wireless communication services and offer related content and information through various media.
iShares Global Telecom ETF: The iShares Global Comm Services ETF seeks to track the investment results of an index composed of global equities in the communication services sector. The ETF offers investors exposure to Global companies in media, entertainment, social media, search engine, video/gaming and telecommunication services.
iShares US Telecommunication ETF: The iShares U.S. Telecommunications ETF seeks to track the investment results of an index composed of U.S. equities in the telecommunications sector. The ETF offers investors exposure to U.S. companies that provide telephone and internet products, services, and technologies.
In closing:
The Pandemic has resulted in a new working world that requires access to fast effective internet and telecommunications. A major lesson from the Pandemic is to invest in industries that have a future under the new norm we have all become a custom to. The telecommunication sector is assisting businesses move online, which is the future way of working and something that should be considered by investors.
