So I've decided to disclose my own personal investments - as long as they are related to the tech/telecom sector. I plan to continue this as I look into new stocks and take positions (or not, for that matter), plus I'll provide updates on positions I took.
I took a position in AMT, an operator of wireless cell towers, already back in 2004. My principal reasoning behind this investment was that with the expansion of 2G networks and the roll-out of 3G and potentially even 4G, the installed base had to grow. Plus, new spectrum in the higher frequencies with shorter reach was to be put up for auction, with new players to enter the market, so again more cell towers would have to be built. Another factor that would contribute to a growth in the installed based was increasing call and data volume. Spectrum efficiency of 2G networks is too low to handle that volume with traditional multiplexing, so the cell density would have to be increased. So after the frenzy of 2000 and the subsequent downfall all the way to 2002, there were a lot of good reasons to look into the cell tower sector, and AMT was the leader of the pack with the biggest portfolio of towers in prime locations. Plus, while you can say a lot of bad things about the big telcos, they do have big pockets and pay their bills on time - and while they need more cell towers, they do not really like to see them on their balance sheets.
InPhonic, a provider of wireless services and devices, is a company whose stock I bought in January 2007. In the U.S., each year some 70M service contracts incl. a phone are sold. While the growth in service contracts is slowing down as penetration reaches saturation, the replacement market is growing. Here is a great presentation by Nokia on the North American cellphone market (link).
The average lifetime of a phone is some 18 months. In 2006, about 10% of all handsets were purchased online. While five years ago that number was only about 1%, it's expected to grow to 20% of the next three to four years. What actually happens is that 85% of all cell phone shoppers go online to do research before they buy a phone, and each year more of them stick to the online channel instead of going into a bricks-and-mortar shop. (see the Compete Inc. blog for more great market data). As products become more commoditized, people go online and shop for price and convenience. On a website, you can compare prices across carriers and vendors with a single mouse-click in five minutes - try that by walking into different carrier shops, it will consume an entire weekend. There are enough great websites out there that provide un-biased reviews of cellphones, so there is no real need to go into a shop and seek advice from a sales clerk whose job in the first place is to sell you a plan, and not a phone. So there is a case for online retail of wireless phones.
But back to the online world of buying phones. Currently, approximately 50% of the phones sold online are sold over the carriers' websites, and apparently InPhonic manages to capture the lion share of the other half, as 10% go their competitors like Letstalk.com, and some 40% go to InPhonic. InPhonic runs numerous retail websites, the best known is probably Wirefly. It also manages the cellphone websites for BestBuy and Amazon.com. As the Gorilla in the market, InPhonic is well positioned to profit from the growth in online sales of cellphones.
Another stock that is on my watchlist is Anadigics (ANAD). Anadigics produces chips for wireless, cable and fiber networks. Unfortunately there was some recent pure speculative movement around ANAD, as Michael Cahill from Chilton Funds mentioned in an interview that his fund has a 11.5% stake in ANAD, so I've decided to keep my fingers off that stock for the moment.
The next posts will cover the financials. Full Disclosure: I own stock of American Tower and InPhonic, I do not own any stock of Anadigics, Amazon.com, BestBuy or Nokia and am not an investor in Chilton Funds.