[By Paul Theron]

In an article in the 1 December 2005 edition of Fortune magazine, Paul LaMonica wrote that the new AT&T (just merged with SBC) was “not worth buying”. He anticipated declining margins due to fierce competition. He worried that the company was a “middle weight” in the mobile phone industry. And he fretted that it would end up like listed US electricity utilities: solid, low-growth, cash-generative businesses that were only owned by pension funds for the yield.

Fast forward a few years, and the picture has changed a great deal. For starters, AT&T merged with BellSouth in 2006, giving it full ownership of AT&T Wireless, with the fixed-line business subsumed into the larger wireless-focused entity. In 2008, it struck an exclusive deal with Apple to roll out the iPhone, and it now activates over 1m of these devices every month. Revenues since 2005 have almost trebled, and despite enormous capital spending, free cash flow is US$4bn/quarter.

The point of this illustration is to demonstrate that if it’s stupid to view the mobile communications industry in rich countries as having gone “ex-growth”, how much stupider is it to make that case in the developing world?

Moronic comments of this nature have been doing the rounds in recent months, ever since SA-listed mobile giants MTN and Vodacom reported slowing subscriber growth numbers in the local market (notwithstanding continued impressive subscriber additions in Africa and the Middle East).

The point is that the mobile communications industry is still in its early development stages. Saying that the mobile companies are “mature” in 2010 is like saying that the motor industry had peaked in the 1920s once reliable petrol engines became widely available, or like saying that the pharmaceutical industry was done growing once simple blood pressure drugs were perfected in the 1950s.

UN data shows global mobile phone ownership reached 4bn at the end of last year and, though growth was down on the previous year, it remained close to 20%. There are 6,8bn people on the planet, and you can safely assume that almost all those who don’t have a mobile phone want one. And those who do have one are trying to work out how soon they can get a newer, sexier model.

Crucially, researcher Gartner forecasts that smartphone sales will more than triple to around 500m handsets by 2012, from 140m in 2008. Smartphones can run interesting social media applications such as Twitter and Facebook.

More than 90% of current mobile phone subscribers use SMS or instant messaging platforms like QQ, Mocospace and MXit. Internet access from mobile phones is catching on like wildfire. Have you checked in with your granny lately? Chances are she is checking the weather on her new handset.

And this is just the beginning. China Mobile, with 500m customers, just announced it would take a 20% stake in Shanghai Pudong Development Bank so it could implement its mobile point-of-sale payment strategy. Goodbye wallet and banknotes!

New wireless compression technologies will deliver higher bandwidth at lower cost. Devices such as Kindles and iPads are coming preinstalled with network-enabled Sim cards. Teledensity rates will cruise past 100% (one device or Sim card per person) and never look back.

Mobile handsets or tablets will be the principal delivery platforms for video (Web-served like YouTube and broadcast television) within a few years.

It will take longer for these services to reach poorer nations, but the margins there will be fatter. Average revenues per user in Nigeria are just $12. AT&T gets just under $100/month from the average iPhone user on its network. Think of the revenue potential as Nigerians, a nation of hyperactive entrepreneurs, get richer.

For the mobile companies, the challenge is to wean themselves off their dependence on high-margin voice, to profit more from data traffic. The global split is around $600bn vs 200bn now, but that mix is changing fast.

So, what should investors pay for mobile communication companies like MTN, which will have around 130m customers by the end of 2010? There are a few risks. The wonderful business in Nigeria is compromised by its poorly traded operating currency, the naira. Absurdly, the Nigerian government seems set on implementing formal registration of new Sim cards from 1 May 2010. Billing systems in SA have been misbehaving. And the new business in Iran is underappreciated due to that country’s political problems.

But, for all that, MTN still remains one of the most attractive investment opportunities on the planet.

To repeat one of my favourite investment quotes, by Andy Kessler: “The only way to truly beat the market long term is to use your head, think out long-term trends, figure out where productivity and therefore wealth is being created in the economy, and invest alongside it.”

Mobile communications technology is one such long-term trend.

Most market participants won’t pay for what they can’t see. That’s fine. But in this case, surely you would have to be blind not to see at least some of the growth potential?