pssst! Telecom issues...read this.
Four Thoughts on Telecom
18-Sep-00 00:34 ET
[BRIEFING.COM - Robert V. Green] Sometimes it is worth stepping back from the day to day events of the market and contemplate as big a picture as you can, for investment purposes. With technology stocks losing a lot of steam lately, and possibly more to come, it is time to consider the possibilities ahead for telecom. Here are four "big picture" thoughts for technology investors.
The Global Telecom System
There are few certainties in technology investing. But the continued rapid growth of telecom services is as inevitable as it gets.
And the potential is staggering.
Over the next ten years, a global wireless communications system will be built. A single "phone" will work anywhere and carry data, voice, and video. The line between TVs, PCs, and phones will become blurred. "Telecom," technology will include communication and information transferof all kinds. The applications developed for use on this system will greatly change the way everyone lives their daily lives, including residents in the "third world."
The building of the global communications system will go a long way towards developing the "under-developed" parts of the world. As a wireless communications system is built, it will allow telecom services to reach
China, for example, will never build a cable based voice only telephone system, as we have in the United States. A wireless system, capable of broadband data rates, will be the system on which most of China's 2 billion people make their first telephone call.
It is sometimes easy to think that everyone already has a cell phone, particularly if you live in technology rich areas. But most of the world is an untapped market.
Of course, much of the world can't afford $40 monthly phone bills, either. Nevertheless, the size of the untapped market, no matter whose figures you use, is enormous.
The telecom market is the next great technology market, and if you consider yourself a technology investor, you must be a part of it.
The 3G Standard
A lot of the focus in telecom investing is the direction and breadth of the next generation of phone service, dubbed "3G," for third generation. A generic term, "3G" also is used to refer to a set of industry standards, being developed incrementally by the International Telecommunications Union standards body, that will define the technology to be used for the global telecom system.
The industry is currently deeply enmeshed in the battle over just what technologies to standardize on. In order to make a single phone work globally, and be backwards compatible with existing systems, companies must build 3G phones that use technology from other companies.
The stakes are high, because all of the key wireless technologies are patented intellectual property, with royalties required for other companies to use patented technologies.
Many telecom investors like to argue over the merits of various technologies that will be used as components of the 3G standard. This debates can range from "GSM versus CDMA" arguments to arguments over which components of CDMA will be part of the 3G systems.
But the most vigorous debates are usually given by those investors who believe that their XYZ stock is the one that owns the key technology enabling the 3G standard. And since the technology is intellectual property, every other manufacturer will owe XYZ a royalty payment. When multiplied by the number of potential customers (see the section above), the revenue projections are astronomical.
This is a misguided approach.
The telecom industry, guided by International Telecommunications Union standards body, is not going to select a single vendor as the primary vendor of intellectual property for 3G systems.
Such an approach would be equivalent to crowning one vendor "King" and forcing all others to pay tribute. While the marketplace is willing to do this, standards set by industry consortiums are not.
Lessons of the Internet Market
In reflecting on the future of the telecom market, it is also useful to reflect on the recent history of the internet market.
After all there are many parallels. Both are major new explosive markets, with tremendous investment possibilities. But with portions of the internet stock market in shambles, it is worth remembering the lessons learned:
Many promising companies (investment ideas) never made it into real businesses.
Things change.
Many companies that did make it, were worth the most when their promise was still unfulfilled.
Things change.
Short term market effects test the patience and belief of long term investors so strongly that only the most persistent can last.
Things change.
Four years ago, many believed that everything would be sold over the internet. Now, most believe that selling consumer retail items over the internet is unworkable. It is likely that such dramatic shifts in perception will also occur in the telecom market.
To win, you will need to continually reexamine what you believe.
Infrastructure Worth the Most
Another perspective to retain while contemplating the future of telecom is the single lesson that is common to both of the previous two great technology booms: infrastructure wins.
In the software PC boom, Microsoft became the single dominant company. In the internet/networking explosion, Cisco became the single dominant company. Both companies provided the essential platform that others built applications upon.
With the telecom market explosion having global possibilities greater than both the PC and the internet boom, picking the company that will eventually be the single dominant player is the richest possible prize that any technology investor can seek.
In fact, if you missed out on Cisco and Microsoft, the telecom boom of the next ten years is the "second chance" you have been looking for.
Unfortunately, we don't know yet what company will "own the infrastructure," either. (But Briefing.com will share our thoughts with you along the way.)
Conclusions
Big picture reflections on coming booms are always helpful when short term outlooks are gloomy, as they seem to be this fall. Fortunes will be made in the telecom stock market in the coming years.
Of course, there will be a lot of money lost in the coming telecom boom as well. It won't be easy to find, and hold, the right stock(s) to build a huge fortune upon.
But count yourself fortunate to live in a time where such a boom is not only possible, but virtually inevitable.
Comments may be emailed to the author, Robert V. Green, at rvgreen@briefing.com |
