Telecommunication Sector
Presentation
Michael Watson
Jiyuan Wang
Kaihua Yu
Agenda
• Sector Overview
• Analysis
▫
▫
▫
▫
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
• Recommendations
Size of Sector
Telcm.
3.02%
S&P 500 Weight
Telcm
4.12%
SIM Weight
• Currently 110bps Overweight
Sector Overview
Sector
S&P 500
Weight
SIM Weight
+/-
Consumer
Discretionary
10.65%
8.74%
-1.91%
Consumer
Staples
11.05%
12.24%
1.19%
Energy
12.27%
12.41%
0.14%
14%
10.06%
-3.94%
Health Care
11.51%
11.77%
0.26%
Industrials
10.56%
9.08%
-1.48%
Information
Technology
19.68%
21.69%
2.01%
Materials
3.56%
3.25%
-0.31%
Telecom
3.02%
4.12%
1.10%
Utilities
3.7%
2.57%
-1.14%
Financials
Main Industries
1.
2.
3.
▫
▫
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Wireless
Cell phone services, pager
services, and broadband
personal
communications.
Sector Revenue By Industry
(Billions)
$5.10
Wired
Traditional wire line
services such as local,
long distance, and
international phone
services.
Satellite
Provides telecom services
via satellite.
$141.4
0
Wireless
Wired
Satellite
$204.4
0
Major Players
• AT&T (NYSE: T)
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Wireless & Wireline service provider.
Revenues of $113.2bn during FY 2010.
29.8% of Wireless Telecom market share.
30.5% of Wired Telecom market share.
• Verizon (NYSE: VZ)
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Wireless & Wireline service provider.
Revenues of $106.5bn during FY 2010.
32.3% of Wireless Telecom market share.
23.4% of Wired Telecom market share.
• Sprint Nextel (NYSE: S)
▫ Wireless service provider
▫ Revenues of $32.5bn during FY 2010.
▫ 16.3% of Wireless Telecom market share.
Performance Comparison
Shares
Cost
Current Price
Unrealized
Gain/(Loss)
Dividend
Income
Total
AMT
4,000
$ 44.88
$
55.10
$24,874
-
$24,874
T
7,800
$ 28.53
$
29.31
$6,102
$13,416
$19,518
Total
$44,392
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Porter’s Five Forces
Reasons
New Entrants
Barrier
High
Large investment in
infrastructure
Strict Government
Regulation
Substitutes
High
Providing similar services
Intra-Industry
Rivalry
High
Mature Industry
Buyer Power
Moderat
e
Usually long-term contract
High exit cost
Supplier Power
Low
Many Suppliers to choose
Industry Comparison
Wireless
Wired
• Life Cycle
▫ Annual Growth 3.9% (0611)
▫ Still at the Growth Stage
▫ Cyclical
• Life Cycle
▫ Annual Growth -7.5% (0611)
▫ Decline Stage
• Technology change
▫ 4G
• Subscribers Penetration
▫ US: Saturate
▫ International: Low
• Challenge from wireless
industry
▫ Subscriber shirking
▫ Most of the major players
are also in wireless
industry.
Important Factors
• Positive
▫ Population Growth
▫ Technology Innovation
• Negative
▫ Low Business Spending
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Capital Spending
New Private Construction: Office
New Private Construction:
Communications
S&P500 Price Index
Real GDP
Consumption: Cellular Telephone
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Sector Revenue and Earnings
Sector ROE
Sector ROE
Relative to
S&P 500
Sector Net Profit Margin
Wireless Industry
Absolute ROE of Wireless
Industry
Net Profit Margin
of Wireless
Industry
Integrated telecom Industry
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Valuation Analysis
Valuation Analysis
Valuation Analysis
Recommendations
• 4.8% revenue growth expected in wireless
telecom through 2016.
• 7.3% decrease in wireline revenues expected
through 2016.
• Already overweight.
• Recommendation: Hold (possibly look to invest
in additional telecom stocks).