The changing telecom industry
In the 1950s, a dividend investor could make a few decisions and forget about the market. One could buy a basket that included AT&T (T), General Electric (GE), General Motors (GM), Procter & Gamble (PG), plus one's local or regional utility. Today's faster pace of change means more frequent disruption in every industry. Telecom is a prime example of our fluid, dynamic and rapidly evolving business environment. The boundaries between telecommunications, technology and entertainment are becoming more blurred. This change presents numerous investment opportunities. We began a series of telecom articles with a March 7 article about AT&T's two new revenue streams: advertising revenue through Xandr and increased subscription services through WarnerMedia.
After the 1984 breakup of AT&T, dividend investors could choose among T and one or more of the "Baby Bell" regional operating companies. Since the reunifications that culminated in 2006, many dividend investors desiring telecom exposure simply would choose either AT&T or Verizon (VZ). U.S. investors willing to accept currency fluctuation might choose one of the Canadian telecoms, such as BCE Inc. (BCE) or Telus (TU). More adventurous folks might add some CenturyLink (CTL) or reach overseas for Vodafone (VOD) or China Mobile (CHL).
This isn't your parents' phone company
Today, the industry is multi-dimensional, and the expansion of technology has caused telecom to bleed over into other sectors. Numerous technology companies have exposure to telecom. When I think phone, I think Apple (AAPL). Those with Androids will think Google, i.e., Alphabet (GOOG), though that company hasn’t yet entered the dividend universe. Qualcomm (QCOM) and Cisco (CSCO) provide an indirect way for dividend investors to participate in the rapidly changing telecom world. The Broadcom (AVGO) website proclaims the company theme: "Connecting Everything." Texas Instruments (TXN) is inside our "connected automobiles."
It's difficult to keep up with the changing partners on the telecom dance floor, i.e., Nokia (NOK), Deutsche Telecom (OTCQX:DTEGY), and the former Time Warner. Telecom is at the leading edge of our much-needed infrastructure renewal. CenturyLink has amassed significant infrastructure assets that give it a relatively wide moat. The real estate investment trust American Tower Corp. (AMT) offers cell tower exposure. Part of the portfolio of Brookfield Infrastructure Partners (BIP) is a French network with 33 data centers and 7,000 towers, including one in the Eiffel Tower. Digital Realty Trust (DLR) is a data storage REIT.
(Photo source: Brookfield Infrastructure Partners website)
Where to start?
As Peter Lynch would say, "Look around. Which stores are bustling?" Recently, I spent part of a Saturday with a few hundred other buyers in a local Apple Store. The iPhones were nearest the front door. That's still Apple's bread and butter. Apple is a retail juggernaut.
What's in the news? On March 3, CNN's Fareed Zakaria GPS (Global Public Square) had a segment on 5G technology that included an interview with Cisco's CEO. Robbins reiterated his statement to the February 27 MWC Barcelona (formerly Mobile World Conference) that 5G can be a technology development that lives up its hype, with the potential to be 100 times faster than the current 4G technology.
Robbins explained that 5G may not be very noticeable to mobile phone users, though it will reduce the latency - the time it takes for connections. But the main breakthrough offered by 5G is its ability to instantly connect multiple devices, such as automobiles and traffic lights. This can reduce "idling" time at intersections. How many times have you wished that the traffic light could see that your lane has a long line at a red light while there are no vehicles enjoying the green light because its lane is empty.
One place to start is to look for companies that will benefit from this 5G technology. This includes the makers of the infrastructure, such as Cisco’s 5G Cloud-to-Client Network and its Enterprise Networks. A previous article covered some of AT&T's involvement in both the infrastructure build and its wireless capability. An upcoming article will focus on Verizon, which is taking a very different approach than rival AT&T. It’s similar to the Coca-Cola (KO) versus PepsiCo (PEP) comparison. KO focuses exclusively on beverages, while PEP offers food products in addition to beverages. AT&T has embraced telecom's interface with entertainment content production and distribution, while VZ is doubling down on its mobile wireless network, proclaiming that the "5G Revolution Begins at Verizon Wireless."
My retirement income portfolio includes two classic telecom companies: AT&T and BCE Inc. BCE operates under the trade name Bell Canada. It has ventured into television and professional sports. The portfolio includes QCOM, which is a major player in wireless devices, and CSCO, which has part of the communications infrastructure, including the coming 5G technology. TXN makes semi-conductors and integrated circuits, among many other products. It makes components for connected devices, automobiles and the "Internet of Things." CSCO, QCOM and TXN will have a presence in autonomous vehicles.
Next time, we'll compare some metrics for six telecom-related companies:
Disclosure: I am/we are long T, CSCO, QCOM, TXN, BCE, BIP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Business relationship disclosure: This article was written by Ted Leach (Dividend Sleuth) with edits from Kirk Spano and David Zanoni. Additional disclosure: This article is for informational purposes only (not a solicitation to buy or sell stocks). Ted is not a registered investment adviser. Investors should do their own research or consult a financial adviser to determine what investments are appropriate for their individual situation. This article expresses my opinions and I cannot guarantee that the information/results will be accurate. Investing in stocks involves risk and could result in losses.