The first annual meeting bringing together the members of the Advisory Board and managers of the PF-Telecom fund was held on 5 April. Key points emerging at the meeting are summarised below:
Despite growing competition, opportunities for growth do exist
While the Telecoms sector has recovered well since the bursting of the bubble in 2000, its characteristics have also changed markedly over this period: from being a Growth sector, Telecoms have gradually acquired the profile of a Value sector. Telecommunications companies are flush with liquidity and are paying dividends. Current valuations are looking particularly attractive. However, the sector is still beset with highly competitive conditions, particularly among telecoms operators. Pressure on margins is intensifying, especially in Europe, while the US is helped by its more benign regulatory environment.
In spite of this, genuine growth opportunities are there to be found in the sector. The key is to identify the leading growth segments and then select the most dynamic players. Companies which can successfully renew and enhance their customer proposition, explore new markets and implement innovative and (above all) customer-focused strategies, should be able to succeed in an environment undergoing profound change.
A sector experiencing a convergence-driven revolution
The convergence of technologies, services and contents is unquestionably emerging as a factor for growth in the sector. ‘Triple play’ approaches, involving combined internet, telephone and television access – and even ‘Quadruple Play’, with the inclusion of mobile services – are mushrooming, as is the number of providers. The telecommunications world is embarking on a new phase in its development.
Development of new business models
Although innovation and technological integration are the essential growth drivers, they are not the only ones. The pace of development and improvements in the customer offering in terms of content and information services is accelerating, giving rise to the development of new business models. However, looking for growth opportunities among companies which are innovating both in terms of their business model and of their technology could be a risky venture. A lower-risk route to success could be to concentrate on companies offering a significant improvement in their traditional services by tacking on value-added increments, whether technological in nature or service- or content-based.
An increasing number of players are striving to extend their offering in this way. It is far from certain that new entrants will be able to outperform them in this area. Traditional operators are also in a favoured situation as they have the advantage of a well-established customer base.
The challenge: to find the right positioning
The production and consumption of telecommunications services are being revolutionised. The possibilities are multiplying – but so is the complexity. Operators creating the greatest added value will have to find the most appropriate positioning to optimise operation of their existing business model and to develop an integrated combination of services, content and applications in an effective manner.
In a situation where the demarcation lines between the different businesses are breaking down, all players will increasingly find themselves competing directly with one another across the three components of triple play, or even quadruple play. It is therefore vital for these suppliers of new services to be careful in targeting the audience most likely to respond enthusiastically to the advances on offer. It is essential that they fully understand the behaviour of existing and potential consumers. The winners in this situation will be those best able to comprehend and take account of the experience, behaviour and needs of users, in order to offer services of high quality and, above all, at maximum convenience. The reward for success is increased usage and enhanced customer loyalty.
Growth potential of emerging markets
Whereas in the developed markets growth in the sector is fuelled primarily by the development of value-added telecommunications services, the growth potential in emerging markets also – and still – lies in the supply of basic telecoms. China and India are seeing dramatic and highly encouraging demographic and economic
expansion. These countries are potentially the most promising sources of growth, when compared to other developing markets such as Latin America, where there is a lack of major economic players, or Africa, which is a higher-risk environment due to weak corporate governance.
The role of the Advisory Board
The Advisory Board allows the Fund Managers to better identify future trends affecting a sector. Through regular consultation between fund managers and members of their Advisory Board, day-to-day investment decisions can be made in the context of a longer-term sector framework. The Advisory Board’s members provide timely information and play an important role in generating investment ideas. However they have no role in the investment decisions. Investment decisions are the sole responsibility of the Fund Manager who is at liberty to determine the stock picking of the fund within the investment guidelines.
PF-Telecom
The PF-Telecom Fund invests worldwide in companies which are active in the development, provisioning and marketing of telecommunications services and technologies. The fund shows an impressive outperformance +14.43 % over 12 months (as per End of April 2006) against the MSCI World Telecommunication Services, being in the 1st quartile over one and three years.
The Advisory Board of the fund is composed of highly specialised people working for leading companies/organizations in the telecom field:
- Mr Pekka Ala-Pietilä, former President, Nokia Group, Finland
- Dr David O. Williams, Chairman of the Networking Task Force of ICFA, CERN, Switzerland
