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From Fixed Lines to Wireless: What Foreign Telecoms Should You Invest In?

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As we already know, fixed-line telecommunications is not the attractive business it used to be; now the wireless connectivity business is slowing as well. Unfortunately, there is some maturity in developed countries as the number of users has stopped growing. But some markets still have room for growth as infrastructure and disposable incomes have not reached their full potential.

So, if you would like to consider investing in telecommunications, here are three promising telecoms that operate in Taiwan, Canada, and Brazil.

Fixed lines still important
First, there's the dominant telecommunications service provider in Taiwan, Chunghwa Telecom (NYSE: CHT  ) . The company offers fixed-line, mobile, and data networks in the country and surrounding islands.

The company posted solid numbers for its third quarter with a total revenue increase of 2.6% and mobile growing 10.6% year over year. Considering that fixed-line services are now relatively saturated in the country, Chunghwa's future growth will come from mobile and data operations.

Chunghwa made an aggressive rollout of fiber-to-the-home and high-speed FTTx offerings, while expanding its 3G mobile services. With these actions, Chunghwa managed to come ahead of its competitors. Moreover, its broadband subscriber base of 4.55 million works as a good cash flow generator and can help support the heavy investments it requires. Chunghwa is also incursioning in IPTV and cloud-computing services.

But, it is important to notice that even though it's decreasing, fixed-line generated 38% of this quarter's revenue, while its mobile segment accounted for 48.5%.

Growing wireless
Second, we have BCE (NYSE: BCE  ) , which is Canada's largest communications service provider and the holding company for Bell Canada.

BCE's third quarter was not bad either, and showed a 7% increase in adjusted net earnings to $584 million and a strong cash flow growth of 8.9% to $747 million. A key fact about this company is that only 8% of revenue base is made up by traditional home phone services and that 82% is wireless, Internet, and media.

The company is executing a strategic initiative that consists of six goals that include: investments in broadband networks, accelerating wireless services, leveraging wireline momentum, expanding media coverage, improving customer service, and achieving a competitive cost structure. The overall goal is to generate higher revenue per user and attract new customers.

However, remaining acquisition costs related to the Astral takeover will reduce margin growth in the coming quarters. Also, there is the possibility that Verizon might make an entry in the Canadian market, making it harder to maintain and generate new customers. Stay alert!

Lower margin ahead
Finally, we have largest telecom operator in Brazil,Telefonica Brasil (NYSE: VIV  ) , which is a subsidiary of Spanish telecom giant Telefonica SA.

Third quarter results for the company were good. Mobile data ARPU grew 24% year over year and net revenue recorded an annual growth of 1.9% in the quarter and 2.6% year to date. 

Even though the mobile business registered revenue growth, the fixed lines suffered due to reduction in tariff rates and high commercial expenses. Wireless substitution remains high as a growing number of customers are taking advantage of discounted calling plans from several wireless operators. Since fixed lines accounted for 37% of revenue in 2012, its decrease in users should not be a minor concern. However, the offering of bundled services (wireless and fixed-line) could improve the situation.

Nonetheless, several factors are expected to reduce the growth momentum that Telefonica Brasil was experiencing. First, we have inflationary costs, competitive pressure, excessive government intervention, and a wireless market reaching maturity. Inflation in the country will be a benign 6% this year, but with regulated tariffs it will just turn into higher costs.

Final thoughts
Even though fixed lines are not the future, today they still represent a significant proportion of the total revenues. So, they should be taken into account.

In a country with 115% of mobile penetration like Taiwan, Chunghwa is well-positioned to remain as the absolute leader. However, it will be hard for the company to keep growing in this already saturated country without expanding overseas.

BCE's future profitability relies on the successful implementation of its six core goals. Overall, the company is making progress, but correct execution requires more capital investments and targeted cost reductions, which could affect BCE's financials.

Despite the company's leading position, Telefonica Brasil's outlook is not as promising as it used to be. It's wireless market is reaching maturity and raising tariffs is not an easy option to increase profitability.

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