Monday, July 17, 2017

Is "Telecom" a Stable Segment of the Equity Market?

One way of looking at the traditional telecom segment of the total public market is that it is, in some ways, too small to constitute a “sector” in its own right, like transportation, industrials or health care, especially when considered on a “single country” basis.

Consider the U.S. market, which essentially consists of AT&T, Verizon, CenturyLink, T-Mobile US, Sprint, and a handful of other firms with significant market capitalization.

Some funds include a wider basket of companies, on a weighted basis. But most of the market value is driven by a handful of firms. Verizon, for example, has a market cap of about $177 billion. AT&T has a market cap of about $223 billion.

CenturyLink has a market cap of about $13 billion. Sprint is worth perhaps $35 billion. T-Mobile US is worth about $50 billion.

Comcast is valued at about $186 billion, but the access business is valued at perhaps 61 percent of that, or perhaps $113 billion. Charter is worth about $92 billion.

The point is that including fixed network, mobile and cable TV providers as a single market, nearly all the market capitalization is held by seven firms.

Going forward, we might expect not only further consolidation, but also a shift in revenue towards “applications” revenue (video entertainment networks, studios and enterprise apps related to internet of things). At least for the moment, it does not seem that truly-significant additional market cap will be generated by cloud computing or hosting, devices.

Equity analysts often follow a larger basket of firms and industries called “telecommunications, media and technology.” That might not only offer enough diversification to create a more-stable “segment,” but also likely represents the future of the former “access” segment as well.

Market Cap
AT&T Inc.
Verizon Communications Inc.
CenturyLink, Inc.
Shenandoah Telecommunications Company
Consolidated Communications Holdings, Inc.
Frontier Communications Corporation
Cincinnati Bell Inc.

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