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3 telecom stocks increasing networks and cloud computing capacity

The telecommunications sector in 2014 has already picked-up pace, proving this year will see changes that investors in the industry have to keep up on. Network expansion and mobile-app services in the cloud will be major themes and sources of business for these telcos.

Telstra Corporation Ltd (ASX: TLS) CEO, David Thodey, stated in a speech given in the US that by 2020 the make-up of the company’s business will be 100% different in technology from what it is today. The recent moves to sell off once prized businesses like Sensis and clear the deck for change shows it is heading in that direction.

The telecom giant knows that mobility in technology is driving this need for innovation. Developing a cloud computing world for its customers and future markets took one more step with the acquisition this week of O2 Networks, which creates and advises on networks. Mobile users want apps and ever growing features and that requires bigger and better network systems.

Telstra wants to expand into Asia because of its projected strong GDP growth in the mid-term, as well as the ever growing middle class of the region in general.

TPG Telecom Ltd (ASX: TPM) explained in its December AGM presentation that its free cash flow for 2013 rose from $150 million to $174.5 million, of which it utilised $107 million to pay down long-term debt to $39.1 million. Its 2013 NPAT of $149 million makes its financial strength very sturdy, allowing it further growth opportunities.

A case in point was the December announcement of the acquisition of AAPT, the Australian telecommunications infrastructure company for $450 million. It has extensive fibre cable networks in six states and fibre access to 1500 premises.

TPG executive chairman, David Teoh, said: “The incorporation of AAPT’s inter-capital fibre into TPG’s extensive CBD, metropolitan and international network assets will further enhance TPG’s position as an increasingly major force in the telecommunications market.”

Singapore Telecommunications Ltd (ASX: SGT), the operator of Optus, has businesses that stretch out over South-East Asia, India and as far as Africa. In 2013, a stronger Aussie dollar reduced international earnings when reported, but with a weakening in the dollar, future earnings will benefit.

Being a mobile carrier in so many developing countries, many of their customers are using the internet for the first time through their mobile phones, and the company reported that they are seeing customers upgrading to larger data packages to use faster 4G network systems. This creates the need for larger network infrastructure, which it and its associates are moving to develop.

In its November second-quarter results, it also saw a 4% rise in Singapore home fixed-line revenue, due to more customers taking up triple-bundle plans (mobile, pay-TV and internet). This is the kind of  “triple-play” service that Telstra is working towards offering in conjunction with Foxtel, 50% owned by the telco along with Twenty-First Century Fox Inc’s (ASX: FOX) 50%.

Foolish takeaway

Both Telstra and TPG Telecom had strong share price moves upwards over the past 12 months. Acquisitions are setting the pace for further growth.

Singapore Telecom hit a peak back in July, after a strong run-up starting in Dec 2012. I believe it may be at a consolidation phase. The growing economies of Asia and a return to normality after the GFC will work to its advantage. Asian middle class population growth will open up customer growth for the company.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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