Telecommunications - Investors remain calm despite exponential band-width investment

It is not surprising that tensions are surfacing between the telecoms and internet giants, and that we have been following this week’s conference in Paris (Le Web). Telco CEO’s have aired their views that the amount of data being used by the ever-advancing smart phones is very expensive for them and a cost that they would love to share with someone other than their subscribers. It may not be merely coincidental that Telecommunication Services is the sector with the biggest weekly rise in short interest, so we will zoom in to see investor sentiment towards: Telefonica SA (MCE:TEF), Vodafone Group Plc (LON:VOD), Telecom Italia SpA (BIT:TIT), France Telecom SA (EPA:FTE), Verizon Communications Inc (NYSE:VZ) and AT&T Inc (NYSE:T).

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With genuine smart phone competition, Vodafone and others are not afraid to raise the subject of sharing the cost of bandwidth with firms, like Apple, Google, Facebook and Samsung, who are not remotely sensitive to how expensive it is to provide the networks over which their devices guzzle data. Also in their minds is Apple’s recent (but aborted) attempt to sell SIM cards with their devices.

I have done some market research of relevance to this piece given that I carry a new HTC phone that takes photos with 8m megapixels and goes through data like a knife through butter. I expect the map application to instantly update wherever I am in the world, and it has pulled photos of my Facebook friends and stuck their mugshots in my address book – without being prompted! Poor Vodafone.

Whilst the operators raise the question of cost sharing, the subscribers continue to absorb costs of evolving pricing models - ironically in the way of tiered and pricing caps, which phased out the unlimited mobile call minutes of the 1990’s and early noughties.

Telefonica owned company, O2 took the driver’s seat when it introduced a data cap of 500mg or 1GB per month after which heavy data users are charged. Interestingly, funds who lend - our proxy for institutional ownership - have reduced their holdings since August from 740 million to 700 million shares. However, institutional ownership in the ADR reaches an annual high of 4.3 million, although relatively low in comparison to the main listing. Short sellers as always are relatively uninterested in trading this stock with short interest flat at 1%.

Vodafone looks to be following suit as it is reported to also be planning to rollout charges to customers in accordance to their data usage levels. Again a thinly traded stock amongst the short sellers, short interest stands at less than o.5% of total shares outstanding. Institutional investors have also been reducing their holdings since August from 13,400 million to 12,200 million shares.

The trend of institutional investors reducing their holdings in telecoms continues in Telecom Italia Spa, which sees institutional ownership fall from an annual high of 1,850 million back in August to 1,700 million shares currently. Short interest has been flat since mid-April when it fell from 6% to less than 1% of total shares outstanding on loan. Over in France, France Telecom SA saw a similar movement in short interest falling from 5% to 1% of total shares in the second half of the year, whilst institutional ownership saw little change overall over the year.

In the US, AT&T Inc have already moved away from unlimited data usage plans. Short interest remains low but has recently seen a slight uptick to 0.5% of total shares, as the share price has rallied to new 52 week highs. Funds who lend continue to hold fast of their holdings, with a total 1,240 million shares available to lend. Rival Verizon Communications has also seen a slight rise in short interest to 1% as share prices have rallied. Funds who lend have slightly decreased their holdings over the year by 20 million shares to 560 million shares total.
 

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