5G to Scottish TV: investing in communications

Juliet Schooling Latter 15/08/2019 in X Strategy

August, historically, has been a busy month in terms of communications breakthroughs.

On 16 August 1858, for example, the first transatlantic telegraph message was sent by Queen Victoria to American President James Buchanan. 100 years later on 13 August 1960, the first two-way telephonic conversation with a satellite took place.

This year its all about 5G. Samsung, Nokia, Vodafone, Huawei, One-Plus… the race is on in telecommunications to provide customers with faster, more reliable and consistent connections.

But, as Tom Slater, co-manager of Scottish Mortgage investment trust, told in a recent podcast, the providers of 5G infrastructure have been slow to the party – all the progress and value so far has come from the companies like Facebook, Alphabet and Tencent, that provide the services we want to consume at this higher speed.

Phubbing, not conversing

Technology has changed the way we communicate. When did you last receive a telegraph – if ever? Come to that, when did you last choose to pick up the phone (or raise your eyes) and actually talk to someone, rather than texting, emailing or tweeting instead?

The art of conversation seems to be dying and we are becoming a species of Phubbers.

‘Phubbing’ is something most of us have experienced, even if the word is unfamiliar. It is the name given to ‘the snubbing of others in favour of your phone’. You know – when you’re in a room with someone but both of you are looking at your phone instead of each other.

Why is this? Basically because a phone is not just a phone any more. It’s our alarm clock, our weekly shop, our television, our everything.

There is also more to telecommunications than just a phone. From television to broadband, networks to handsets, it is the infrastructure that allows data in words, voice, audio or video to be sent anywhere in the world. And because it is so vast – and perhaps because its links to technology are so great – there are also investment opportunities in abundance.

Putting your money where your mouth was…

Telefonica is an example of a company that now encompasses a lot of this ‘infrastructure’. A global telecommunications provider based in Spain, it serves millions of customers across Europe, the UK and Latin America. It operates under the O2-brand name in Europe and is the top holding* in the Aviva High Yield Bond fund. Manager Chris Higham said recently: “As the incumbent operator in Spain, they have a strong position delivering TV content, high-quality fibre broadband and mobile across key European markets. Our team have met management on many occasions and believe they have a great track record in executing their strategy, despite facing intense competition from other telecom players over recent years.”

Another fund really embracing the communications industry is Fidelity Global Special Situations. Manager Jeremy Podger has three communication services stocks in his top ten, as well as tech stock Apple*.

Alphabet, the owner of Google, is his top holding but he also invests in T-Mobile US and Charter Communications* – the third-largest multichannel video service provider in the US by total subscribers (15,950,000). It’s a bit like Sky and Virgin here, it provides cable TV, high speed internet and home phone service for a monthly fee but no contract.

Another fund that is investing in the sector via another route – its debt – is M&G Optimal Income. This strategic bond fund’s largest holding is AT&T**, the world’s largest telecommunications company, the largest provider of mobile telephone services, and the largest provider of fixed telephone services in the United States. It’s also the parent company of mass media conglomerate WarnerMedia, making it the world’s largest media and entertainment company in terms of revenue. This fund also holds bonds of Verizon Communications (which started life as part of AT&T) and Orange in its top ten**.

And it’s not just the big multi-nationals that are expanding their businesses. Sid Chand Lall, manager of Marlborough Multi Cap Income fund told us recently about his investment in Scottish TV. “They’re going to effectively use their broadcast business, which is a cash cow of sorts, and reinvest to grow the production business into content, and potentially stream to the likes of Netflix or efficiently create TV series for the BBC. A lot of that work is already in progress and they’re hiring some very interesting people – like the MD who created Dragon’s Den” he said.

Speaking of Dragon’s Den… the 17th series kicked off last week, with more would-be entrepreneurs pitching their business ideas. So perhaps it’s time for us Phubbers to put down our phones and say “I’m in” to investing in our communications instead.

*Source: fund factsheet, 30 June 2019
**Source: fund factsheet, 31 July 2019

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