Telecoms-A Growth Bet

Grant Bowers
Portfolio Manager,
Franklin Global Advisors

Corporate spending in many areas of technology will clearly decline in 2009, but we think market expectations were a little too dire and people will be pleasantly surprised at how robust expenditures on tech will be in the second half of the year.

Technology shares have already outperformed meaningfully year-to-date. Sector news flow and fundamentals, though fragile and unspectacular, stopped getting worse at an accelerating rate. In addition, it appears that tech spending reductions are stabilizing and companies are starting to budget for software, hardware and networking upgrades in the not-so-distant future.

Companies in our portfolio that could potentially benefit include communications equipment industry holdings Cisco Systems and Juniper Networks.

Apple is another holding that is currently benefiting from consumer spending on technology products. The company's iPhone sales have more than doubled from the prior year.

An area that we believe represents strong secular growth in the U.S. and globally is wireless telecommunications. One of our top holdings in FTIF Franklin U.S. Opportunities Fund is wireless tower owner and operator SBA Communications. SBA is benefiting from an increased demand for wireless service in the United States.

The company's business model is very typical of growth businesses we like-it has a high level of recurring revenue from long-term contracts; solid growth and operating leverage; and there are high barriers to entry, as it is very difficult to obtain permits and construct new towers. We have owned SBA for a while and have been adding to it aggressively as the market significantly discounted its long-term future growth prospects.

Another wireless holding we like is Crown Castle International, which also owns, operates and leases towers. In general, tower companies are benefiting from an ever-increasing demand on wireless networks that is driven by additional subscribers, growing voice usage and new wireless applications, like data cards, text messaging, streaming video and even YouTube.

The products and services offered by telecom companies are no longer considered discretionary investments. They have become part of the cost of doing business for many companies. Consequently, whether it is software or a service platform that is under consideration, or whether it is about increasing bandwidth efficiency through telecom equipment, these are being regarded as core investments that businesses need to make in order to stay efficient and competitive.

Please click here for more information on the FTIF - Franklin U.S. Opportunities Fund.