4th April 2013
Standard Life Investments say that cable TV and global operators are emerging as the winners in the new digital economy. In its latest global outlook, Dominic Byrne Investment Director, Global Equities says that the law of physics dictates that cable networks are better suited to delivering high speed two way data connections, given their much bigger data pipe.
He writes: “This is important for internet download speeds. Cable networks can offer more than 100Mb versus copper wire ADSL, which usually manages speeds up to 24Mb. In the pay-TV segment, cable can provide video on-demand services, catch-up TV and multiple HD channels compared with broadcast-only satellite pay-TV offerings.”
Byrne says that the cable players’ high-speed networks are looking increasingly valuable to other telecoms operators.
He says the roll-out of WiFi holds both threats and opportunities.
“On the one hand, WiFi could become a competitor to mobile networks. On the other, mobile networks could lower their costs by offloading data traffic on to the much cheaper WiFi network. Mobile phone operators have consequently been looking at cable operators as potential business partners and/or bid targets.”
Byrne notes that Virgin Media is the only scale cable operator in the UK and suggests that concerns about the firm’s debt levels weighed unduly on the shares in 2011. He also tips Kabel Deutschland.
He writes: “We consequently bought into the stock at a point when the shares looked attractively valued. Since then, Virgin Media’s improving debt profile has driven good earnings upgrades. The value inherent in its business was recognised when US cable television group Liberty Global launched a takeover bid for the company earlier this year.”
Similarly, we expect German cable operator Kabel Deutschland to benefit from its dominant position in its relatively wellestablished domestic market. There is intense speculation that Vodafone is currently looking to buy Kabel Deutschland.
He says that the increase of use of e-commerce being transacted on the move should benefit not just mobile phone providers but also software providers. Two winners unsurprisingly are Google and eBay.
“We believe that mobile platform e-commerce is coming close to a tipping point in profitability terms. Superior network speeds, content optimisation for mobile functionality, the continued growth in device numbers and consumer usage levels are all combining to drive more effective mobile advertising which, in turn, is resulting in higher e-commerce conversion rates (i.e. ratios of orders versus overall site visits).”
“We are adding to stocks that we believe are positioned to benefit from these trends and hence to establish themselves as key intermediaries in the valuable mobile e-commerce space. In the online world, the bulk of advertising revenues stems from search products, where Google is the dominant force. It enjoys a leading position in online search advertising and seems poised to establish even stronger dominance in mobile search advertising. Mobile search advertising is a relatively recent phenomenon and pricing levels have been lagging those achievable for desktops. We expect to see solid growth in both volumes and pricing levels as advertisers come to recognise that mobile advertisements can offer unique benefits (including the ability to link content messaging to consumers’ individual locations). In our view, this long-term potential is not being fully appreciated.
“We expect eBay to prove a further beneficiary of the trend toward mobile shopping, with mobile usage proving an important driver of its accelerating sales growth. The continuing expansion of eBay’s PayPal payment mechanism on to mobile phones and other retail formats serves as a further positive.”
This is a link to the full Global Outlook.