US wireless stocks have more than halved in value since the beginning of the year, resulting in the ...
US wireless stocks have more than halved in value since the beginning of the year, resulting in the continued weakness of the global telecoms sector.
Scott Meech, fund manager at Threadneedle, says the US wireless sector has been the worse sub-sector within global telecoms, with a number of companies putting out profit-warnings, subscriber growth slowing and more competitors now in the market.
Meech says: 'Global weakness in telecoms has been driven by a dramatic fall in US wireless stocks. Sprint PCS shares started the year at around $24 and have now dropped to $10.5. Some of the European telecoms, like Vodafone and BT, which have exposure to the US wireless stocks, have suffered themselves as a result of this weakness.'
Ed Walker, global telecoms analyst at JP Morgan Fleming Asset Management, says that in the US there has been a marked deterioration in the fundamentals of many carriers. This deterioration, he says, is not just affecting the consumer long-distance sectors, it is now affecting the higher margin data businesses with a number of companies being commoditised.
Walker adds the disruptive nature of increased competition among US telecoms has been a cause of poor performance in the sector, driving down share prices. Walker says increased competition has been largely the result of weak balance sheets from companies across the sector.
Disappointing data from European mobiles is another factor Walker points to for the weak performance from telecoms so far this year. Walker says: 'Investors were optimistic in fourth quarter 2001 that data revenues from European mobiles were just round the corner and the market was looking for signs that ARPU (average revenue per user) would increase. However, the data from ARPU in the first quarter was disappointing and so is the outlook, quashing the hopes of many that there was going to be an uptake in revenues.'
The realisation of the intense competition among US wireless companies is another factor behind the weakness of telecoms, according to Walker. He says that last September was a very poor month for US consumer subscriber growth for US wireless companies.
Walker says: 'There are no definitive reasons why September was such a terrible month, some have argued that the events of 11 September brought forward very few subscribers. Others have suggested that at the time, with the run up to Christmas, other consumer products, such as the XBox, were simply more attractive.'
Meech says that the fixed line stocks have held up better, with SBC Communications only falling from a share price of $39 at the start of the year, to $37 as at 3 April 2002.
Meech says: 'We have been underweight globally in the telecoms sector as we are still concerned about US wireless companies. All these companies have a negative cash-flow and have issues over how they fund their expansion going forward. As a result we are continuing to be cautious on the US sector.'
Looking at European telecoms, Meech says that the biggest issue is that there are several companies, like France telecom and Deutschew Telecom, which have too much debt.
Evidence of some subscriber growth.
Companies sorting out liquidity problems.
Limited consolidation in European mobiles.
US wireless stocks have halved.
Marked deterioration in the fundamentals.
Q1 ARPU data was disappointing.
Sector is changing
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