Fisher investments on telecom

TOC.indd viii 4/11/11 9:09:18 AM Fisher Investments on Telecom FFIRS.indd i 4/11/11 9:07:46 AM FISHER INVESTMENTS PRESS Fisher Investments Press brings the research, analysis, and market intelligence of Fisher Investments’ research team, headed by CEO and New York Times best-selling author Ken Fisher, to all investors The Press covers a range of investing and market-related topics for a wide audience—from novices to enthusiasts to professionals Books by Ken Fisher Debunkery How to Smell a Rat The Ten Roads to Riches The Only Three Questions That Count 100 Minds That Made the Market The Wall Street Waltz Super Stocks Fisher Investments Series Own the World by Aaron Anderson 20/20 Money by Michael Hanson Fisher Investments On Series Fisher Investments on Energy Fisher Investments on Materials Fisher Investments on Consumer Staples Fisher Investments on Industrials Fisher Investments on Emerging Markets Fisher Investments on Consumer Discretionary Fisher Investments on Utilities Fisher Investments on Health Care Fisher Investments on Technology FFIRS.indd ii 4/11/11 9:07:47 AM Fisher Investments on Telecom Fisher Investments with Dan Sinton and Andrew S Teufel John Wiley & Sons, Inc FFIRS.indd iii 4/11/11 9:07:47 AM Copyright © 2011 by Fisher Investments Press All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com Requests to the Publisher for permission should 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no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation You should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books For more information about Wiley products, visit our web site at www.wiley.com Library of Congress Cataloging-in-Publication Data: Sinton, Dan Fisher investments on telecom / with Dan Sinton and Andrew S Teufel p cm — (Fisher investments press ; 20) Includes index ISBN 978-0-470-52707-8 (hardback); ISBN 978-1-1180-6409-2 (ebk); ISBN 978-1-1180-6410-8 (ebk); ISBN 978-1-1180-6411-5 (ebk) Investments, Foreign International finance Investment analysis Telecommunication—Economic aspects I Teufel, Andrew S II Title HG4538.S4935 2011 332.67'22—dc22 2010052435 Printed in the United States of America 10 FFIRS.indd iv 4/11/11 9:07:47 AM Contents Foreword ix Preface xiii Acknowledgments xvii Part I Getting Started in Telecom Chapter Telecom Basics Telecom 101 A Defensive Sector Inelastic Demand 11 A Capital Intensive Sector 12 Regulation 14 Chapter A Brief History of the Telecom Industry 19 The Early Years 19 Recent History 24 Chapter Telecom Sector Composition 31 Global Industry Classification Standard (GICS) 31 Global Telecom Benchmarks 32 v TOC.indd v 4/11/11 9:09:18 AM vi Contents Industry Breakdown 38 Same, Same, but Different 41 Part II Next Steps: Telecom Details 43 Chapter Telecom Sector Drivers 45 Economic Drivers 46 Political Drivers 51 Sentiment Drivers 56 Chapter Consumer Demand Emerging Markets 61 Developed Markets 66 Chapter Challenges and Opportunities 71 Wireline 72 Wireless 78 Advertising & Publishing 82 Part III Thinking Like a Portfolio Manager 85 Chapter The Top-Down Method 87 Investing Is a Science 87 Einstein’s Brain and the Stock Market 89 The Top-Down Method 90 Top-Down Deconstructed 96 Managing Against a Telecommunications Benchmark Chapter Security Analysis TOC.indd vi 61 103 107 Make Your Selection 108 A Five-Step Process 109 Telecom Analysis 117 4/11/11 9:09:18 AM Contents Chapter Telecom Investing Strategies TOC.indd vii vii 123 Strategy 1: Adding Value at the Sector Level 124 Strategy 2: Adding Value at the Country or Industry Level 125 Strategy 3: Adding Value at the Security Level 126 Appendix: Additional Resources 129 Notes 137 Glossary 141 About the Authors 151 Index 153 4/11/11 9:09:18 AM TOC.indd viii 4/11/11 9:09:18 AM 144 Glossary Federal Communications Commission (FCC) An independent agency of the US government, which was established by the Communications Act of 1934 to regulate the Telecom sector It oversees licenses, rates, tariffs, standards, limitations, and so on Federal Subscriber Line Charge Also know as a Federal Access Charge, Customer Line Charge, Interstate Access Charge, Interstate Single Line Charge, FCC Approved Customer Line Charge, Subscriber Line Charge, or SLC It’s a federally mandated charge billed by local telephone companies and pays part of the cost of supplying a phone line to a home or business to the local telephone company It is designed to help local phone companies recover the cost of providing “local loops.” It’s not a tax, but a charge that is part of the price you pay to your local telephone company Neither the FCC nor any other government agency receives the Federal Subscriber Line Charge, and the FCC places a cap on the charge Fiber optics Technology based on transferring information over thin filaments of glass or other transparent materials Coded light pulses that represent data, image, and sound are transmitted at higher speeds than more conventional materials, like copper GSM (global system for mobile) GSM is the most popular standard for mobile telephony systems in the world GSM differs from its predecessor technologies in that both signaling and speech channels are digital, and thus GSM is considered a second generation (2G) mobile phone system High definition television (HDTV) An improved television system which provides video with approximately twice the vertical and horizontal resolution of pre-existing television standards It also provides audio quality approaching that of compact discs Incumbent Local Exchange Carrier (ILEC) An ILEC provides telephone exchange services in a specific region The regional boundaries for ILECs were determined by the Telecommunications Act of 1996 BGLOSS.indd 144 4/11/11 8:30:01 AM Glossary 145 Intercarrier payment Expenses payable to another telecommunications service provider for a range of services, such as the transmission and termination of traffic, roaming charges, and services either for administrative purposes or to provide telecommunications services or facilities Interexchange carrier A long distance company providing long-distance phone service between LATAs Also called IEC and IXC Internet Service Provider (ISP) Any service provider, including providers of voice telephony or cable television services that provides Internet connectivity or an Internet-based application on a retail or wholesale basis ISPs may provide additional services, such as e-mail accounts and remote data file storage ISDN (Integrated Services Digital Network) ISDN integrates speech and data on the same lines by providing access to packet switched networks over ordinary telephone copper wires Prior to ISDN, phone lines were used overwhelmingly for voice, with limited data services LAN (local area network) LAN is a transmission network encompassing a limited area, such as a single building or several buildings in close proximity In such a small geographic area, leased telecommunication lines are not needed to link computers and devices Landline Traditional wired phone service LATA (local access transport area) A geographic service area established in accordance with the Modification of Final Judgment (MFJ) in order to define the area within which a telephone company may offer services LEC (local exchange carrier) The local or regional telephone company that owns and operates lines to customer locations It can be either an independent company or a Bell Operating Company BGLOSS.indd 145 4/11/11 8:30:01 AM 146 Glossary Local loop The communications channel, usually a physical line, between the customer’s premises and the edge of the telecom service provider’s network It’s also known as a subscriber loop MMS (multimedia messaging service) A wireless messaging service that adds images, text, audio clips, and video clips to SMS (Short Message Service/text messaging) Mobile data Mobile data is wireless data transmission to a handheld device, such as a smartphone or PDA Mobile data plans have provided a growing source of revenue for telecom firms due to the popularity of smartphones Mobile penetration rate Measures the number of mobile subscribers per 100 inhabitants and is usually represented as a percentage figure Modification of Final Judgment (MFJ) The 1982 US federal court judgment that set the rules and regulations concerning deregulation and divestiture of AT&T and the Bell system Multiplexing An electronic or optical process that combines a large number of lower-speed transmission lines into one high-speed line by splitting the total available bandwidth of the high-speed line into narrower bands (frequency division) The same result can be achieved by allotting a common channel to several different transmitting devices, one at a time in sequence (time division) Multiplexing devices are widely employed in networks to improve efficiency by concentrating traffic Network Any system designed to provide one or more access paths for communications between users at different geographic locations Networks may utilize circuit or message switching that route messages based on unique addresses for recipients OEM (original equipment manufacturer) The manufacturer of products that are resold by another vendor who usually substitutes its name on the product for that of the manufacturer BGLOSS.indd 146 4/11/11 8:30:01 AM Glossary 147 Packet A group of binary digits switched over a digital network When data has to be transmitted, it is broken down into similar structures of data, which are reassembled in the original data chunk when they reach their destination Packet switched network A digital data transmission network that uses packet switching technology Packet switching A digital data transmission method that divides messages and files into standard-size pieces (packets) that are switched across networks individually and then reassembled at their destination Prepaid calling card A card or virtual card that is bought in advance entitling the owner to make phone calls When the owner of the card makes phone calls, the value of the card decreases at a predetermined rate per minute Public Utilities Commission (PUC) state phone service The agency regulating intra- RBOCs (regional Bell operating companies) RBOCs resulted from the 1982 AT&T antitrust settlement with the US Department of Justice, in which it agreed to divest its local service companies The seven resulting independent RBOCs are also known as the “Baby Bells.” Reseller A company that does not own transmission facilities It purchases telecommunications services at wholesale and sells them to the public for profit Also known as a Resale Carrier Roaming A tariff charged by mobile communications network operators which allows a subscriber to use a cell phone outside of the local calling area The tariff is usually measured by minute, data, or message There are often at least two charges: an end-user retail charge paid by the end-user to a service provider, and an intercarrier retail charge paid from one service provider to another for network use BGLOSS.indd 147 4/11/11 8:30:02 AM 148 Glossary Router An electronic device that intercepts signals on a computer network The router determines where the signals have to go Each signal it receives is called a data packet, and the packet contains address information that the router uses to divert signals appropriately Satellite A satellite communications system is composed of earth stations that communicate with each other via a radio relay station that orbits the earth—a satellite Satellites are used to transmit a variety of data signals, including telephone and television Service area An area within which a local phone company provides services Also called a local access transport area (LATA) Service plan The rate plan you select when beginning wireless phone service A service plan typically consists of a monthly base rate for access to the system and a fixed amount of minutes per month Various service plans are offered to be cost-effective for different types of customers Also called a rate plan Service provider A telecom provider that owns circuit-switching equipment In contrast, resellers provide phone services but don’t own the switching equipment Also called a carrier SMS (short messaging service) A wireless messaging service that permits the transmission of a short text message from and to a digital mobile telephone, regardless of whether the transmission originates and terminates on a mobile telephone SMS messages can be up to 160 characters Spectrum The range of electromagnetic radio frequencies used in the transmission of data, sound, and television Subscriber Line Charge (SLC) A monthly fee paid by telephone subscribers that is used to compensate the local telephone company for part of the cost of installation and maintenance of the telephone wire, poles, and other facilities that link your home to the telephone network, aka the local loop BGLOSS.indd 148 4/11/11 8:30:02 AM Glossary 149 Switch A device that can be controlled to interconnect two circuits Telecommunications As defined in the Telecommunications Act of 1996: the transmission between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received Any transmission, emission, or reception of signs, signals, writings, images, and sounds or intelligence by wire, radio, optical, or other electromagnetic systems Telephony The technology of transmitting voice over distances via a telecommunications network Twisted pair A cable consisting of two solid copper strands twisted around each other The twisting provides a measure of protection from electromagnetic and radio-frequency interference Unbundling Local exchange carriers providing other service providers access to buy or lease portions of their networks to serve subscribers Universal Service Fund Fee (USF) Also known as Universal Service Fund Charge or Universal Service Charge This charge started on January 1, 1998, as part of the FCC overhaul of telephone fees The USF fee is a charge collected by telecommunications carriers for federal and state funds that support the provision of affordable communications services to rural, isolated, and high-cost regions of the country; low-income residential consumers; schools, libraries, and rural health care Telecom companies are required by law to contribute to this fund, but the law does not prohibit companies from passing this charge on to customers VoIP (voice over internet protocol) Any of a family of methodologies, communication protocols, and transmission technologies for delivery of voice communications and multimedia over Internet Protocol (IP) networks, such as the Internet BGLOSS.indd 149 4/11/11 8:30:02 AM 150 Glossary WAN (wide area network) A computer network that extends over a broad area It usually connects LANs to other LANs using communications lines provided by a common carrier Wavelength The distance between a point on one lightwave and the point of corresponding phase on the following lightwave Lightwaves can be divided into wavelength portions and deployed as a series of communications channels Although the bandwidth supplied by these channels is a function of the equipment deployed at their ends, most commercial wavelength products are offered in standard bandwidth increments, especially 2.5 Gbps and 10 Gbps Wi-Fi (802.11) A limited-range wireless networking protocol based on the 802.11 family of standards, which enables a device such as a personal computer, video game console, smartphone, or digital audio player to connect to the Internet BGLOSS.indd 150 4/11/11 8:30:02 AM About the Authors Dan Sinton is a Research Analyst at Fisher Investments Prior to joining Fisher, he worked at Franklin Templeton, Charles Schwab, and in the nonprofit sector Dan received a BA in International Affairs at the University of Colorado and an MBA from Georgetown University He currently lives in San Francisco, California Andrew S Teufel has been with Fisher Investments since 1995, where he currently serves as Vice Chairman Prior to joining Fisher Investments, he worked at Bear Stearns as a corporate finance analyst in its Global Technology Group Andrew also instructs at many seminars and educational workshops throughout the US and UK and has lectured at the Haas School of Business at UC Berkeley He is also the Editor in Chief of MarketMinder.com Andrew is a graduate of UC Berkeley 151 babout.indd 151 4/11/11 8:29:01 AM babout.indd 152 4/11/11 8:29:01 AM Index Absolute performance, 126 Advertising and publishing, 82–83 Alternative carriers, 42 American Bell Telephone Company, 20 American Telephone and Telegraph Company (AT&T) See AT&T American Tower, 40 Analog to digital transmission, 50, 73 Annual reports, 71 Anti-trust actions, 24–26 ARPU (average revenue per user), 66, 78, 118 Asset allocation, 92 AT&T (American Telephone and Telegraph Company) history of, 3, 14, 20–28 interconnection compensation, 55 iPhone deployment, 50, 68, 69 market category, 40 market size, 20–28 product differentiation, 78 revenue stream, 71–76, 78–82 spectrum, 81 switching costs, 79 wireless technology, 80 Average revenue per minute, 66 Average revenue per user (ARPU), 66, 78, 118 Baby Bells, 25, 28, 53, 75 Backbone, 28 Barrier to entry, 15 Barriers to entry, 28 Bear market, 48 Bear markets, 4–8 Bell, Alexander Graham, 20 Bell Laboratories, 22, 25 Bell System, Benchmark changes, 36–37 Benchmark differences, 34–36 Benchmarks, 93–95 Beta, Bharti Airtel, 81 Binary digits (bits), 76 Blackberries, 78 Bottom-up investing, 90 Brand equity, 119 Brazil, 65 BRIC countries, 62 Brick phone, 24 Bundling, 76–77 Bush, George W., 51 Bush administration, 51 Business and earnings drivers, 109–110 Business segments, 110 Business strategy, 118–119 Cable, 73 Capacity utilization, 14 Capital intense sector, 12–14 Capital intensity about, 12–13 capital market dependence, 13–14 economies of scale, 14 Capital structure, 119–120 Carriers alternative, 42 Competitive Local Exchange Carriers (CLECs), 27 Incumbent Local Exchange Carriers (ILECs), 27 CDMA (Code Division Multiple Access), 80 153 bindex.indd 153 4/11/11 8:30:33 AM 154 Index Challenges and opportunities about, 71–72 advertising and publishing, 82–83 wireline, 72–77 China as an emerging market, 61 Internet rates in, 63 mobile phone usage, 64–65 telcos (telecommunication companies) in, 64, 65 China Mobile, 41 Churn rates (attrition), 78 Cisco, 41 CLECs (Competitive Local Exchange Carriers), 26–27 Coaxial cable, 73 Code Division Multiple Access (CDMA), 80 Combinatory play, 90 Comcast, 41 Communications Act of 1934, 22–24 Company description, 110 Company-specific risk, 114 Comparative advantages, 110 Competition, 110 Competition and barriers to entry, 118 Competitive advantages, 110 Competitive Local Exchange Carriers (CLECs), 26–27 Consolidation, 27–28, 77 Consumer demand emerging markets (EMs), 61–66 smartphones, 68 voice to data, 68–70 wireline charge, 65 wireline to wireless, 66–68 summary, 70 Contrarians, 100 Corporate history, 110 Country or industry level weighting, 125–126 Data, 79–80 Data discrimination, 75 Data segments, 72, 78 Data services, 68 Defensive sectors bear markets, 4–8 bindex.indd 154 dividend yields, 9–11 inelastic demand, 11–12 volatility, 8–9 Differentiation, 78–79 Digital Subscriber Line (DSL), 68 Diversified services, 37, 42 Diversified telecommunication services, 38–41 Dividend tax rare, 56 Dividend yields, 9–11, 120 Drivers, 45 DSL (Digital Subscriber Line), 68 Early years Alexander Graham Bell, 20 Communications Act of 1934, 22–24 universal service policy, 21–22 Economic drivers about, 45–47 economic growth, 47–48 impact of, 98–99 inflation, 48–50 innovation, 50 interest rates, 48–49 Economic growth, 47–48 Economies of scale, 14 Einstein, Albert, 89 Einstein’s brain and the stock market, 89–90 Emerging markets (EMs) disposable income, 62 low penetration rates, 62–64 mobile phone usage, 64 Emerging Markets Index (EM), 33 Enhanced stock selection, 91–92 Equipment segments, 78 Ericsson, 81 Exchange-traded funds, 103 Facilities, 73 Family plans, 81 Federal Communications Commission (FCC), 22, 27 Federal Reserve, 49 Fiber-optic cables, 28, 75–76 Financial strength, 119 Financial Times, 100 Fisher, Ken, 7, 100 4/11/11 8:30:33 AM Index Five step analysis process business and earnings drivers, 109–110 fundamental and stock price performance, 112–114 risk identification, 114–115 strategic attributes, 111–112 valuations and consensus expectations, 115–117 Float-adjusted indexes, 33 Frontier Communications, 77 Fundamental and stock price performance, 112–114 Geographic diversity, 118 GICS Telecommunication sector, 41 Global System for Mobile Communications (GSM), 80 Global telecommunication benchmarks about, 32–33 benchmark changes, 36–37 benchmark differences, 34–36 sector benchmarks, 37–38 telecommunication weighting, 33–34 Government ownership, 41 Government policy, 51 Gray, Elisha, 20 Gross domestic product (GDP), 47 GSM (Global System for Mobile Communications), 80 Handsets, 80–81 History of telecommunications early years, 19–24 recent years, 24–28 summary, 29 Home country bias, 99 IBM, 81 ILECs (Incumbent Local Exchange Carriers), 26–27 Iliad, 39 Incumbent Local Exchange Carriers (ILECs), 26–27 India Bharti Airtel, 81 Internet rates in, 63 mobile phone usage, 63–64 bindex.indd 155 155 penetration rates, 62 population and disposable income, 62 Industries, 31 Industry breakdown diversified telecommunication services, 38–41 wireless telecommunication services, 39–41 Industry overview, 109 Inelastic demand, 11–12 Inflation, 48–50 Inmarsat, 39 Innovation, 50, 82 Integrated services, 38–39, 42 Intercarrier compensation, 55 Interconnection fees, 55 Interest coverage ratio, 119 Interest rates, 48–49 Internet growth rates, 50 Internet penetration rates, 63 Investing science, 87–89 iPhones, 50, 68, 69, 78, 81 Jackson, Janet, 51 Kingsbury Commission, 21 Landline services, 4, Large cap vs small cap, 58–-59 LEC (local exchange carriers), 27 Licensing, 55–56 Local exchange carriers (LEC), 27 Long distance services, 25 Low penetration rates, 62–64 Ma Bell, 4, 24–27, 53 See also AT&T Macro overview, 92 Macroeconomic drivers, 46 Macroeconomic indicators, 46 Management, 119 Managing against telecommunications benchmark, 103–106 Margins, 118 Market efficiency, 86 Markets and customers, 110 MCI Communications Corp (MCI), 24–26 Mobile phone penetration rates, 63 4/11/11 8:30:33 AM 156 Index Mobile phone usage, 64 Modification of Final Judgment (MFI), 25 MSCI All-Country World Index (ACWI), 33 MSCI EAFE Index (Europe, Australasia, Far East), 33 MSCI World Index, 8, 32–33, 36, 93, 94 MSCI World Telecommunications Index, 48, 95, 103, 104 MSCI World Telecommunications sector, Natural monopoly, 21 Net neutrality, 74–75 News and press releases, 110 Newton, Isaac, 89 Next generation networks, 80 Nokia, 41 Non-stock specific risk, 114 Obama administration, 51 1G/2G/3G/4G technology, 80 The Only Three Questions That Count (Fisher), 7, 100 Pay phone, 24 Penetration rates, 62–63 Political drivers effects of, 99 political shifts, 51–53 regulation implementation, 54–56 regulatory changes, 53–54 Political risk, 119 Political shifts, 51–53 Portfolio drivers analysis of, 106 defined, 97 expected risk and return, 93–94 use of, 108, 112 Portfolio drivers and country and sector selection analysis of, 96–101 economic drivers, 98 political drivers, 99 sentiment drivers, 99–100 Prepaid phones, 68, 79 Prepaid services, 63 Price cap regulation, 54 bindex.indd 156 Price/earning (P/E) ratio, 116 Pricing, 54–55, 81 Product risk, 117 Public policy shifts, 17 Purchasing Manager’s Index (PMI), 47 Quadruple play, 77 Quantitative factor screening, 101–102 Quintuple play, 77 Recent years anti-trust actions, 24–26 Telecommunications Act of 1943, 26–27 Regional Bell Operating Companies (RBOCs) See Baby Bells Regulation, 14–17 Regulation, risk and reward, 15–17 Regulation implementation licensing, 55–56 pricing, 54–55 spectrum, 56 taxes, 56 Regulator goals, 15–16 Regulatory changes, 53–54 Reinvestments, 120 Return variability, 92 Risk aversion, 56 Risk control, 92 Risk identification, 114–115 Roosevelt, Franklin D., 22 Rural service providers, 77 Russell 2000 index, 33, 93 Russell 2000 Telecommunication Index, 95 Russell 3000 Growth index, 58 Russell 3000 Value index, 58 Russell Growth index, 57 Russell Value index, 57 S&P 500, 33 S&P 500 Telecommunications, 93 Sales growth, 118 Scalability, 91 Sector benchmarks, 37–38 Sector level value addition country or industry level weighting, 125–126 4/11/11 8:30:33 AM Index sector overweights and underweights, 124–125 stock level selection weighting, 126–127 summary, 127–128 Sector overweights and underweights, 124–125 Sector weighting, 93 Sectors, 31 Security (stock) selection, 92 Security analysis about, 107, 120–121 described, 108 five step analysis process, 109–117 selection, 108–109 telecommunication analysis, 117–120 Selection of securities, 108–109 Sentiment drivers as consensus thinking about investment categories, 99–100 large cap vs small cap, 58–-59 risk aversion, 56 use of, 61 value vs growth, 57–58 70-20-10 variability split, 92 Slim, Carlos, 39 Smartphones, 68, 78 Social networking, 65 Spectrum, 56, 81–82 Stock level selection weighting, 126–127 Stock selection, 102–103 Stock-specific risk, 114, 115 Strategic attributes, 111–112 Strict criteria, 101–102 Sub-asset allocation, 92 Sub-industries, 32 Sub-industry weights, 103, 104 Subscription trends, 117–118 Switching costs, 79 Systemic risk, 114, 115 Taxes, 56 Telcos ( telecommunication companies) in Brazil, 65 in India, 64 price cap regulation, 54–55 relative valuation, 116 strategic attributes, 112 bindex.indd 157 157 Telcos (telecommunication companies) in China, 64, 65 in India, 82 Telecom New Zealand, 35 Telecommunication, defined, Telecommunication analysis, 117–120 Telecommunication basics about, 2–4 capital intense sector, 12–14 defensive sectors, 2–4 public policy shifts, 17 regulation, 14–17 regulation, risk and reward, 15–17 regulator goals, 15–16 summary, 17 Telecommunication companies (telcos) See telcos ( telecommunication companies) Telecommunication sector composition GICS telecommunication sector, 41 global industry classification standard (GICS), 31–32 global telecommunication benchmarks, 32–38 industry breakdown, 38–41 summary, 41–42 Telecommunication sector drivers about, 45–46 economic drivers, 46–50 political drivers, 51–56 sentiment drivers, 56–59 summary, 59 Telecommunication weighting, 33–34 Telecommunications Act of 1943 consolidation, 27–28 ILECs and CLECs, 26–27 Universal Service Fund (USF), 27 Telecommunications Act of 1996, 27 Telecommunications investing strategies about, 123–124 sector level value addition, 124–125 Telstra, 35 Termination fees, 55, 74 Ticker tape, 24 Tiered pricing plans, 81 Time to market, 77 Time Warner, 41 4/11/11 8:30:34 AM 158 Index Top down method 70-20-10 variability split, 92 about, 90–91 benchmarks, 93–95 Einstein’s brain and the stock market, 89–90 enhanced stock selection, 91–92 investing science, 87–89 macro overview, 92 managing against telecommunications benchmark, 103–106 risk control, 92 scalability, 91 for stock selection, 108 top-down reconstructed, 96–103 summary, 106 Top-down reconstructed portfolio drivers and country and sector selection, 96–101 quantitative factor screening, 101–102 stock selection, 102–103 strict criteria, 101–102 Top-down security selection, 127 Total return, 11 TracFone, 78 Triple play, 76 Turkcell, 55 Universal Service Fund (USF), 27, 74, 77 Universal service policy, 21–22 US Department of Justice, 23, 24 USF (Universal Service Fund), 27 Vail, Theodore, 20–22, 27 Valuations and consensus expectations, 115–117 Value vs growth, 57–58 Verizon consolidation, 76 intercarrier compensation, 55 market category, 40 product differentiation, 76 spectrum, 81 switching costs, 79 bindex.indd 158 system buildout, 76 wireless technology, 80 Video, 76 Voice segments, 72, 78 Voice to data, 68–70 VoIP (Voice Over Internet Protocol), 73–74 VoIP services, 73 Volatility, 8–9 Wall Street Journal, 100 Western Electric, 22, 23, 25 Western Union, 20, 21 Wi-Fi hotspots, 73 Wireless challenges little differentiation, 78–79 low switching costs, 79 prepaid phones, 79 Wireless challenges opportunities data, 79–80 family plans, 81 handsets, 80–81 innovation, 82 next generation networks, 80 pricing, 81 spectrum, 81–82 Wireless services companies, 37 Wireless technologies, 80 Wireless telecommunication services, 39–41, 42 Wireline challenges cable, 73 net neutrality, 74–75 Voice Over Internet Protocol (VOIP), 73–74 Wireline charge, 65 Wireline opportunities bundling, 76–77 consolidation, 77 fiber optic cable, 75–76 time to market, 77 Wireline to wireless, 66–68 Yellow and white page directories, 81 4/11/11 8:30:34 AM ... 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