Telcos: Economic, operational & regulatory factors

IN the first article of the investor series, published last month, we examined the Real Estate Investment Trust (Reit) business model. We followed this piece up with a discussion of the various types of Reits. In this edition, we explore the telecommunications sector through the same four-dimensional framework introduced in our previous sectoral analysis.

For investors exploring the telecommunications sector, it is important to be aware of the key economic, operational and regulatory factors influencing these firms. These not only vary from country to country but also from company to company, depending on the kind of service that is being provided - fixed line, mobile or a combination of the two. Common to all are the opportunities afforded by the growth in data and the proliferation of online services. For operators in developing markets, lower penetration rates offer long-term opportunities. Meanwhile, for operators in the developed world, staying relevant by keeping pace with technological advancements is vital. In general, the sector is marked by intense competition, hefty capital expenditure requirements (at least historically) and rigorous regulatory intrusion.

There are three listed telecommunication stocks in the FTSE ST All-Share index, with a net market capitalisation of S$28.6 billion, and they accounted for 7.5 per cent of the index as at Jan 31, 2018. Of the three, Singtel is the largest constituent company, representing about 90 per cent of the Singapore telecommunications sector by market capitalisation.