Will Emerging Market Telecoms See Double-Digit Growth in 2010?

The telecom sector in the emerging markets has experienced high growth rates in the past few years. The introduction of cell phone services in many of these countries has contributed to the growth of this industry. Due to cut-throat competition, monthly subscription charges have dropped dramatically and are now cheaper than in developed countries.

Mobile service providers in emerging markets are now targeting the vastly untapped rural market where the potential for expansion is huge. Providers are also offering value-added services such as music, sports news, etc. to create additional revenue streams and in the process differentiate themselves from their rivals. Recently there was an article on Bloomberg BusinessWeek where a service provider in India is offering famous Bollywood tunes on cell phones for a small fee. Rural folks who do not have access to radio or tv, use this service to listen to their favorite songs.

From IMF’s Finance & Development magazine, September 2009 edition:

“Just a decade ago, there were still some countries with no mobile service at all. Since then, wireless telephone coverage has enveloped the globe. Mobile phone subscriptions have skyrocketed from 1 billion in 2002 to an estimated 4.1 billion by the end of 2008, covering more than half of the world’s population. The fastest growth rates have been in low-income countries. In Africa mobile phone penetration has soared from just 1 in 50 people at the turn of the century to 28 percent.

The World Bank (2009b) says this growth has been driven primarily by new wireless technologies and liberalization of telecommunications markets, which enabled faster and less costly network rollout. The total number of mobile phones in the world surpassed the number of fixed-line telephones in 2002; and mobile phones now represent the world’s largest distribution platform.”

The table below lists the Mobile Telecom ADR stocks with their current yields and 2009 performance:

[TABLE=277]

China’s KongZhong(KONG) was the best performer in 2009 with a return of 269%. Mexico’s America Movil(AMX) and TelMex(TII) returned over 50%. Philippine Long Distance Telephone(PHI), Deutsche Telekom(DT) and Partner Communications(PTNR) of Israel pay dividends above 5%.

In 2010, emerging markets will have higher growth in the number of subscribers. However carriers may have to aggressively market value-added services in order to generate higher revenue.

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