Communication Services: The Most Undervalued Sector We Cover
We see value in several firms as consumers migrate away from traditional TV bundles and Europe invests in fiber and 4G.
In Europe, the main telecom themes remain the move to convergence along with increased fiber and 4G buildouts. Spain has long been the leader in convergence, with around 80% of broadband customers subscribing to a wireless service from the same company. France has also been pushing convergence but isn't as far along. Germany was slower but is increasingly pushing convergence. Now even the United Kingdom and Italy, which have been big laggards, are starting to offer converged services. The movement to convergence is enhanced by the faster broadband speeds offered by fiber. Historically, cable-TV operators have enjoyed an advantage with broadband speeds due to networks that were designed for video and include more fiber and coax rather than copper. However, to better compete, telecom operators are increasingly laying fiber that provides equivalent speeds to the cable operators. Europe has been much slower at moving to 4G than the United States or Asia, but 4G has really taken off in the past year. Penetration rates are still behind the U.S. and parts of Asia, though. Thus, we expect the transition to 4G to continue as operators extend their 4G networks. While the transition to 4G continues in Europe, the U.S., Japan, and South Korea are preparing for the jump to 5G. Several companies in these countries have discussed initial offerings by the end of this year.
Brian Colello does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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