Remaining true to its transparent philosophy, NakedFunds Management (NakedFunds) (www.nakedfunds.com.au), has revealed that the NakedFunds Australian Share Fund has made investments in both iiNet (IIN) and Vocus Communications (VOC).
Commenting on the investments, NakedFunds CEO, Tim Bryden said, “iiNet have positioned themselves well in the maturing telecommunications landscape and, as a driving force behind industry consolidation, their recent and potential acquisitions should add significant value. Vocus Communications, as an independent wholesale provider of network bandwidth and related services, is leveraged to the increasing demand for data and has demonstrated impressive growth both in terms of customers and earnings.”
The decision to invest was made after NakedFunds conducted detailed analysis and external research on the telecommunications sector and polled its members for insights.
In an Australian funds management first, NakedFunds directly engages with its investors and potential investors who become ‘members’ and are invited to share their opinion on a weekly basis about a specific investment focus each month. Members are asked a number of broader opinion and prediction questions. The investment focus for January 2011 was telecommunications.
Mr Bryden said telecommunications continues to be a dynamic industry and the proliferation of new devices and the massive increase in data downloads both point to ongoing change. “The National Broadband Network and the strategic actions of Telstra will also play a key role in shaping the industry going forward,” he said.
NakedFunds members provided several useful insights:
Consumer Preferences
- ‘Speed/reliability/coverage’ was seen overwhelmingly as the most important aspect of telecommunications from a consumer perspective.
“This finding did not surprise us,” Mr Bryden said. “It highlights that network quality is a key differentiator, although taking this a step further, an apparent contradiction in the results was that while most members believe Telstra provides the best speed/reliability/coverage on their mobile network, they don’t think its mobile market share will increase over the next two years.”
- Bundling of telecommunications services was seen as likely to become the norm. Over 45% of members indicated they had already bundled and most other members thought it was likely they would bundle over the next two years.
“It’s therefore critical that providers have compelling offers in this space” Mr Bryden said. “The trend toward bundling is one of the key factors driving industry consolidation and this response by members just highlights that the trend is very likely to continue.”
- When asked about the least important aspect of telecommunications from a consumer perspective the majority of members (55%) selected ‘Brand/Experience/Size’, but in a surprise finding, close to 25% of members ranked ‘Content/Products/Services’ as least important.
“The fact that a quarter of our members selected ‘content/products/services’ really surprised us,” Mr Bryden said. “It suggests that product differentiation as perceived by consumers is difficult and that any successful new innovation is rapidly adopted by all the major players.”
The National Broadband Network (NBN)
- Most members (about 70%) think that the Government spending $27.5 billion on the National Broadband Network (NBN) will be worth it.
Demand for Data Predictions
- Members have a clear expectation that the demand for data will continue to increase with about 27% predicting further increases of 30-60% over the next two years, and 29% predicting an increase of 160% or more.
Mr Bryden said that figures published by the Australian Bureau of Statistics (ABS) reveal that 50% more data was downloaded by Australian internet users in the three months ending June 2010 than a year earlier. These figures are supported by statements from Telstra, which outline that the amount of information carried on their mobile network is doubling every 12 months and, on their fixed network, doubling every 20 months.
The Results
Overall, most members thought iiNet would make the best investment although TPG Telecom and Vocus Communications also received good support.
The questions and related analysis can be viewed on the NakedFunds Website at the January 2011 – Telecommunications Questions page link http://nakedfunds.com.au/Questions.aspx?FocusID=9