Mobile data to drive telco profits

News that 2013 will be a year in which over one billion smartphones are shipped globally is surely music to the ears of Australia’s telecommunication (telco) providers.  

A recently released report by global accounting firm Deloitte stating its predictions on technology, media, and telecommunications in the coming year provides some interesting insights for investors. While Australia is well placed to deal with the data explosion for wired broadband, thanks to the government’s initiative of the National Broadband Network (NBN), mobile devices require wireless communication and Australia, like many other nations, has a shortage of wireless spectrum available.

The report also highlights the increasing popularity of tablets, such as the ipad. Mobile tablet data usage is quite likely to be an even larger revenue earner for telcos than mobile phone data usage. The convenient larger screen size of a tablet is expected to translate into more time spent and therefore more data used over this device than mobile phones.

An important point made in the Deloitte report, which is made in a general global context but would appear to be highly applicable to Australia is:

“although additional spectrum will continue to be made available in 2013 in many global markets, spectrum exhaustion will continue to exacerbate…

The reason is simple, demand for spectrum will exceed supply”

So which companies could benefit from this industry dynamic and be a good hunting ground for investors looking to profit from growing spectrum demand?

The majority of the mobile communications infrastructure in Australia is owned by Telstra (ASX: TLS), Optus’ parent Singapore Telecommunications (ASX: SGT), and Hutchinson Telecommunications (ASX: HTA), which has a 50%  shareholding in the Vodafone network. These three make a good starting point for evaluating the industry. Following an analysis of the major players, Foolish investors may want to take a look at some of the resellers who pay to access the infrastructure of the majors thus saving themselves the heavy set-up costs. These resellers include TPG Telecom (ASX: TPM) and iiNet (ASX: IIN).

Foolish takeaway

Within the telco sector are some quality, dividend-paying, low debt companies that could experience above average growth rates in the next few years. At the right price, Fools may well find profitable investment opportunities.

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More reading

The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur doesn’t own shares in any companies mentioned.

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