Tuesday, July 31, 2007

Emerging Market Wireless Telecom Boom

The stock prices of wireless handset makers such as Research In Motion (RIMM) and Apple (AAPL) have been soaring. Buying the handset makers would be one way to profit from the Wireless boom, but there are many other overlooked and profitable ways.

Investing in Emerging Market Wireless Telecom Companies is a great way to enjoy the growth.

Emerging market wireless telecom companies are enjoying better growth than Developed Nations. According to the CTIA - The Wireless Association -, the United States as of late 2006 has a 72% wireless penetration rate. Many countries such as Italy, Sweden and the UK already have over 100% wireless penetration (multiple phones per person). It becomes more difficult to grow revenue in these countries.

In Emerging Markets, however, wireless penetration is much less, allowing more opportunities to grow revenue. As an example, in Latin America and South America, wireless penetration is expected to be 60% by 2010.

In Emerging markets, landline phones can be very limited and wireless can be the only way to make calls. Wireless telecommunication is becoming more important worldwide and people in emerging markets such as India are more willing to use the technology including Short Message Service (SMS, or Texting). Mobile phones are easily becoming part of the worldwide culture.

Here are four good ways to profit from the boom in emerging market wireless telecom:

1. America Movil (AMX):

America Movil is the dominant player in the Mexico and the Latin America and South America region. This $107 Billion company has a forward PE of 14.48 and a five year estimated growth rate of 32.1% for a very cheap PEG of 0.45 (less than 1 is very cheap!) According to a research report from Research and Markets, key drivers are low wireless penetration in Latin America, Increasing Demand of Mobile Internet, and Revenue Growth from Mobile Content.

America Movil is also the company that made Carlos Slim Helu the richest man in the world. Jim Cramer has said that we should "start copying the best guy with the best stock ... Carlos Slim."

2. NII Holdings (NIHD):

NIHD is a spinoff from Nextel and serves the Latin America region including countries such as Mexico, Brazil, Argentina, Peru and Chile. This $13.8 Billion company has a forward PE of 22.48, and a five year estimated growth rate of 40% for an inexpensive PEG of 0.56. Together with America Movil, these two companies offer great growth in the Latin American and South American Wireless market.

3. Vimpel Communications (VIP):

Vimpel Communications services Russia and countries in the Commonwealth of Independent States (CIS), countries that were part of the former Soviet Union. This $21 Billion company has a forward PE of 13.40, and a five year estimated growth rate of 24.1% for a low PEG of 0.56. Major competitors include MTS, and MegaFon, but since VIP is an American Depository Receipt (ADR), VIP remains the easiest Russian Wireless Telecom company to invest in from the United States.

Wireless penetration rates in Russia and Ukraine are a little over 100% but wireless penetration is much lower in Kazakhstan (51.7%), Tajikistan (11.9%), Uzbekistan (10.4%), and Armenia (37%).

Vimpel has a 31.7% market share in Russia, 49.5% in Kazakhstan, 3.8% in Ukraine, 8.9% in Tajikistan, 28.2% in Uzbekistan and 38.2% in Armenia.

4. China Mobile (CHL):

China Mobile is now the world's largest mobile operator with its subscriber base exceeding 300 million. This $233 Billion company's five year expected growth rate is 23.85%. With wireless penetration in China at around 30%, there is still a lot of growth.

Julie Pohlig, senior analyst at Vital Wave Consulting, offers interesting insight into Chinese subscribers. Chinese subscribers rely on pre-paid phone cards and pay 80% less than Americans for mobile phone service but their monthly investment per month represents 7% or more of their salary. This says "a lot about the perceived importance of telecommunications in that society," Julie Pohlig points out.

There are many other good emerging market telecom companies out there, but the four companies above represent good wireless telecom companies that cover a good portion of the emerging markets.

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