Buy what you know, urged one-time outperforming US fund manager and super investor Peter Lynch.
If we can see a consumer trend or a company doing well just by being observant in our everyday lives, it can pay to hunt for a way to turn that ‘intelligence’ into a sensible investment, in order to profit.
Migration to mobile devices
If we look about us, and consider the consumer history of computers and the internet, it’s easy to spot a trend. Early on, corporations stuffed vast rooms with wall-to-ceiling banks of mainframe computers serving networks of desktop terminals. From there, the computing power moved to desktop devices. Domestic users then piled into desktop computers for home use.
The internet arrived and grew, with take-up from both business and domestic users. With the internet, home use exploded. Desktop devices gave ground to laptop devices; laptops to tablets and simultaneously, after following a separate evolutionary path, mobile phone devices offered more and more internet services, blurring the distinction between phones and tablets.
There’s no doubt that our internet-using habits are changing as we migrate from computers to mobile devices. Various researchers have it that more than a third of UK internet traffic originates from mobile devices, and growing. Such statistics make the timing of BT Group‘s (LSE: BT-A) (NYSE: BT.US) pitch at EE interesting, because EE is the leading mobile network operator in the UK with 31 million customers — the largest 4G customer base of any operator in Europe.
If that doesn’t sound like a challenge to Vodafone Group (LSE: VOD) (NASDAQ: VOD. US), I don’t know what will. Now’s the time to choose, I reckon. How do you see the future? Does it belong to BT or Vodafone?
A bright future
BT reckons integrating itself with EE will combine the UK’s most advanced 4G network with the UK’s most extensive super-fast broadband network. The move looks astute, and BT expects to generate revenue synergies by providing a full range of communications services to the combined customer base.
The actions BT intends include selling its broadband, fixed telephony and pay-TV services to those EE customers who do not currently take a service from BT. Then there’s potential to accelerate the sale of converged fixed-mobile services to BT’s existing consumer and business customers and offer new services, using both companies’ product portfolios, skills and networks. In all, BT expects to generate revenue synergies with a total net present value of approximately £1.6bn
BT’s Chief Executive sounds excited by the deal. He describes the move on EE as a major milestone. I think he’s right and now may be a good moment for investors to run a slide rule over the firm. 4G meeting the UK’s biggest fibre network seems like a potential game changer.
Should Vodafone be worried?
Just under a quarter of Vodafone’s revenue came from the UK during the firm’s most recent trading quarter. Vodafone is doing well around the world, and it will be a while before BT eats into Vodafone’s global market share. But in the UK it could be different. BT is shaping up as a serious player in the mobile communications and data transfer space.
BT’s forward dividend yield runs at about 3.3% for 2016 and Vodafone’s at 5%. That’s a good place to start with our research. Where will these firms be in ten years time? Over to you…
