Global Allocation Insight

Picking up signals in
communications services

Mar 27, 2019

Consumer trends are providing a clearer
connection to investment opportunities

Data consumption continues to increase, with large cable companies reporting growth rates of roughly 50% year-over-year, while demand for mobile video continues to rise. Because we expect these trends to continue, we hold a positive view on specific segments within the communication services sector, including the cable space and telecom services.

Cable companies have the benefit of a dual income stream as they charge consumers for a video connection as well as an internet connection. Although the number of traditional paid video subscriptions has been declining at an accelerated pace, cable companies specifically have been able to offset those revenue losses with higher margins from their broadband internet service. We expect this trend to continue as an increasing number of consumers rely more on data connections to access content via streaming platforms.

Cable companies still streaming in revenues
While paid video subscriptions decline, growing data consumption drives growth in broadband internet subscriptions.

Growth is expected to continue slowing

 

Source: UBS, December 2018.

In the telecom space, the strong demand for broadband internet services has a positive impact on tower companies. This trend, coupled with strong barriers to entry, creates a very attractive business model. We are particularly interested in the European tower market, where large telecom companies have been spinning off their tower assets and the industry has yet to consolidate.

Elsewhere in telecom, we see longer-term opportunities in wireless operators. We believe the industry is currently in a “mature phase” as wireless penetration has reached approximately 100% in several of the larger markets. However, the continued development of 5G technology represents a real growth opportunity in the coming years.

The BlackRock Global Allocation Fund holds exposure to cable companies, European tower companies and wireless operators that are poised to benefit from the above trends.

View fund commentary

Russ Koesterich
Portfolio Manager, Global Allocation
Russ Koesterich, CFA, JD, Managing Director and portfolio manager, is a member of the Global Allocation team within BlackRock's Multi-Asset Strategies ...

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