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5G Calling: The Contrarian Case for European Communication Services

04 November 2019

Communications Services was the largest change in sector classification late last year. The higher profile US sector stole the headlines, courtesy of several FAANG companies. The changes made by MSCI in their European Communications index, on 3 December 2018, resulted in the addition of media and entertainment companies (such as advertising, broadcasting and publishing businesses) to national fixed-line telecom companies and mobile telecom providers.

These telecom businesses have struggled amid tight competition, which has cut margins, and the need for significant capital expenditure on networks, which has hampered cashflows. More recently, cost concerns have focused on the large bill for securing 5G spectrum. These challenges have led the sector to underperform.

While 5G remains a cost story amid further spectrum auctions this year and into next, the pressures described above should now be reflected in discounted valuations. Looking further out, 5G could bring more business opportunities. For now, with investors looking for less crowded, defensive, inexpensive opportunities, the European Communications sector looks interesting.

Remind Me About 5G

5G, or ‘fifth generation,’ mobile networks will provide a superior service to mobile telephone consumers. The capabilities of 5G include:

  1. Improved broadband speeds, which will allow consumers rapid access to high quality entertainment and information.
  2. The creation of new applications, such as remote surgery, wireless IT infrastructure, avionics and onboard entertainment aboard commercial aircraft.
  3. Greater capacity, provided by efficient use of the available resources (i.e. spectrum and network equipment) and could be utilised by a wide cross-section of industries, including automotive, manufacturing, healthcare and transportation.
  4. Higher responsiveness (ultra-low latency), resulting in the ability to respond quickly to data download requests. This differentiates 5G from previous generations of wireless, as well as parallel technologies such as satellite and cable broadband.

Among the business opportunities, these benefits of broadband wireless will give first-time access to mission-critical services (i.e. new users) and enable Internet of Things on a revolutionary scale.

Figure 1: Mobile Evolution Timeline

Source: State Street Global Advisors, as of 31 October 2019. 


European-Domiciled ETP Segment Flows (Top/Bottom 5, $mn)

European-Domiciled ETP Asset Category Flows ($mn)

Sources: Bloomberg Finance L.P., for the period 24–31 October 2019. This information should not be considered a recommendation to invest in a particular sector or to buy or sell any security shown. It is not known whether the sectors or securities shown will be profitable in the future. 

Fund Details

Source: State Street Global Advisors, Bloomberg Finance L.P., as of 31 October 2019.

Annualised Performance (%, Expressed in Fund’s Base Currency)

Source: State Street Global Advisors, as at 30 September 2019. Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may behigher or lower than that quoted. All results are historical and assume the reinvestment of dividends and capital gains. Visit for most recent month-end performance. The calculation method for value added returns may show rounding differences. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Some of the products are not available to investors in certain jurisdictions. Please contact your relationship manager in regards to availability.

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