Friday, July 29, 2005


The telecommunications market is hot.

I assist a number of folks with their accounts. In them, we hold stocks such as MOT, FON, TXN, GLW, NXTL, QCOM, AMX, and LU. The least profitable of these is LU and we have better than a 100% gain in the past 2.5 years. We have purchased a few others. A couple such as AWE were bought out at more than 100% gains and a few, such as CSCO and LVLT were sold at small losses. NT was sold at a substantial gainer but we should have sold when it ran too far too fast.

Today we jumped on Juniper Networks or JNPR. JNPR provides internet network connections equipment. During the bubble of the 90's, this was one of the high fliers as was GLW. We could have added to our GLW position but it is always prudent to spread your capital around in these volatile businesses.

We all know reform is needed in the area of cable TV service. We know that VZ, SBC, BLS and others are spending billions in preparation to compete with the cable companies. My common and recent experience with Time Warner makes me hunger for an alternative provider. I am not saying that I will switch. I am saying that the cable company monopolies lead to poor service at high costs.

A bill was recently introduced in congress to deregulate the industry. It is very late in the legislative year. It is hard to tell what priority this bill will be given. One would normally be pessimistic about the chances except that the congress is on a roll. CAFTA was passed with a two vote margin, the energy bill and highway bill both passed after 4 years of wrangling. It is clear that our congressional representatives do not want to be painted as a "do nothing congress" before the next elections. There is even a slim chance that congress will pass Social Security reform after the August (6 week) recess. Of course a lot of time will be spent on the Supreme Court vacancy.

Regardless of the bill in congress, the need for telecom equipment is clear. The growth over the next several years is going to be huge. In a few years, the average citizen will wonder how he ever got along without having his pc in his pocket! All of these wireless connections have to be "connected and routed". We are talking about sophisticated science when communications are sent over electrical waves and light waves and switched numerous times from Bangladesh to Maine in an instant. GLW is one of our favorite stocks partly because it holds a number of fibre optic patents.

As my daughter reported in her blog last week, our family purchased computers before DOS was invented. We owned computers that had virtually no memory. To look through a file of names we had to insert floppy disk after floppy disk. My children learned to type and to play games on Digital Research Software. The point is that the early computers were not connected to one another and were not productive. People spent a lot of money and wasted a lot of time learning how to use them. When Visicalc was written, users finally had a spread-sheet program that could actually save the user time and effort. The usefulness grew when email was invented. At first, even dial up connections were difficult to make. The mosaic browser and gopher networks added functionality. The development of the World Wide Web was a watershed event.

In the same way that computers became much more valuable after they were connected by the internet, the pocket PC is going to gain value when it is commonly connected via the wireless internet. The next several years will see the adoption by millions of wireless internet devices.

We like MOT, FON, TXN, GLW, AMX, QCOM and LU and we have added a position in JNPR. On Kramer and Co. Tell Labs, Dycom Industries, MRVC, JDSU, EWY and IWZ were all recommended yesterday. Cisco has continued to buy small companies to expand its dominance. Of course the EFT's, EWY and IWZ are the conservative ways to play the field.

Those of you who hide in mutual funds do not know what you are missing in individual stocks. You can save yourself a tremendous amount of money by avoiding the hidden fees and have the joy of seeing your winners take off. Buying individual stocks will mean that you hit some losers along the way. No big deal, hit the sell button. Weeding the garden is an important part of managing a portfolio. A friend of mine likes to buy and hold. One look at the portfolio tells the whole story. There are some good stocks in it but there is also a lot of dead weight. It would be an advantage to sell the losers for the tax loss and add more lively positions.

Investors who are not willing to weed the garden and to perform other logical management functions, should allow a knowledgeable investor to help. One should not be forced into mutual funds or other high cost accounts to avoid the minor headaches of managing an account.

In any event, BUY THE BULL! It is clear that growth is going to occur and that the big established companies are going to keep or expand their market share. Little guys will continue to be bought out but other little guys will simply lose out. The same bet now is on the large established telecom companies.

The above is not a recommendation for the large mainline phone companies; SBC, VZ or BLS. These companies pay large dividends. However they are having to invest heavily to do battle with the cable companies. They are growing their cell phone businesses but their main line phone business is over priced and getting eaten up by new technology. The reason I like FON so much is because it has chosen not to battle for the main line business. FON is willing to partner with cable companies to gain the connection to the home. The cable companies need a cell phone service provider. It seems unlikely that the cable companies would build or buy a cell phone provider. T-Mobile is certainly a possibility as are several regional providers but FON is offering attractive terms for a partnership.