Millions of us check our phone as many as 150 times a day, and this dependency is deepening.
Vodafone reports that during lockdown, customers used a third more mobile data – they also made 20 per cent more calls.
But there is a disconnect between our reliance on the telecoms companies that supply us with mobiles, landlines and broadband and our feelings towards their shares.
Since pandemic alarm took hold in February, the Stoxx Europe Telecommunications index has fallen by 19 per cent.
The index’s key constituents are Deutsche Telekom, Ericsson, Nokia, Orange, Telefonica (the Spanish owner of O2), BT and Vodafone, whose shares are down 15 per cent since February.
Click here to resize this module
Lately, however, the index has edged upwards.
Is this a signal for a change of heart towards these companies? Are the revenues from the roll-out of the new 5G network, with its rapid download speeds, a reason to reconsider the sector?
Currently there is a more upbeat stance towards telecoms than for some time.
BT – whose mobile brand is EE – reports ‘very, very strong’ sales of the new iPhone 12, which supports 5G.
But Apple’s sleek design is the main reason why this device will be a popular Christmas present and anyone thinking of taking a bet on BT or any other company should be aware of the array of challenges they face.
The firms must upgrade networks before Brexit and remove equipment from the banned Chinese telecoms group Huawei from 5G systems.
As we learnt this week, tough new cyber-security rules will be set by the Government rather than the industry.
Customers are hanging onto their phones for longer, opting for less lucrative SIM-only deals, while lockdown store closures have meant fewer impulse purchases of the latest models. Roaming charge revenue has tumbled because hardly anyone has been travelling.
To boost profit margins, operators are resorting to a favourite tactic, offering bundles of services – mobile, broadband, entertainment, smart devices – to customers.
Share of the week: Associated British Foods
Fast-changing Covid rules have taken their toll on retailers across the board.
But Associated British Foods (ABF) has been hit harder than many because its Primark chain does not have an accompanying online shop – and it warned at the start of the month that the second lockdown would cost it £375million.
When ABF holds its annual meeting next Friday, investors will be crossing their fingers that things are looking up after positive updates about potential Covid vaccines in the last two weeks and confirmation that the lockdown in England will not be extended beyond December 2.
Shareholders will be keen to hear if bosses are still considering 24-hour openings in the run-up to Christmas and whether trading was promising in the first couple of days of reopenings.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ‘Sales at Primark have swung like a yo-yo this year but ultimately its fashionable, low-cost model kept customers queuing round the block when shops have reopened.’
ABF could also give an indication of how its booming food businesses have fared with the latest closures of pubs and restaurants.
Although Primark gets all the attention, ABF also owns Twinings, Kingsmill bread, Dorset Cereals and Blue Dragon cooking sauces.
But this strategy, known as convergence or ‘triple play’, is not the silver bullet that will ensure telecoms are seen less as utilities and more as glamorous tech stocks, with their lofty valuations.
Transformation, however, is taking place, as Richard Hunter of Interactive Investor emphasises.
He cites the €20billion plan for a listing in Frankfurt of a stake in Vantage Towers – the company that holds Vodafone’s 68,000 European cell towers in which space is leased out to other operators.
‘This could raise €5billion to pay down some of Vodafone’s €44billion in debts,’ he says.
Hong Kong group CK Hutchison, owner of Three, has shrunk its debt by selling its own European towers to the Spanish group Cellnex, whose shares have risen by a third this year.
Hunter also points out that Vodafone is paying a dividend and offers a yield of 6.56 per cent, the reason most analysts consider it a buy.
BT needs cash to resume dividend payments, to fund its infrastructure arm Openreach – which is under order to bring gigabit broadband to more households – and also to sort its pension scheme deficit.
When BT featured in Investment Extra in September, there was talk of a bid. This has not yet materialised, but the sale next year of a stake in Openreach is a possibility.
A slice of the proceeds could help plug the pensions hole. But an Openreach sale remains politically fraught.
It sits at the heart of the nation’s defence telecoms network. Its clientele includes most mobile operators, whose services have enabled home working.
This protected over £200billion of UK economic output during the first lockdown, according to Telefonica.
The Spanish company’s transformation project was the merger of its UK mobile arm O2 with Liberty Global’s Virgin Media.
But now that deal is to be investigated by the competition watchdog, the CMA, a blow for Telefonica – yes, it too is heavily indebted – whose shares have nearly halved since February.
Yet they are still rated a hold by most analysts, underlining the more positive perception of telecoms businesses.
You may find this optimism overdone, especially since Talk Talk may succumb to a 97p-a-share bid from Toscafund, the hedge fund, which, only last year, was willing to pay as much as 135p.
But you may already have a stake in the reassessment of the sector if you are an investor in Fidelity Special Situations, or the Fidelity Special Values trust.
They hold Ericsson, Vodafone and also Zegona Communications whose mission is to acquire European telecoms businesses.
All the operators will be keen to find out which companies are on Zegona’s Christmas list.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
Share this post if you enjoyed! 🙂