As many of you know, we have an investment theme in the portfolio that we refer to as the “Data Deluge.” Under this theme, we invest in companies that we believe can monetize the rising river of data moving through the world’s communication networks. As human beings increasingly use a wider array of devices to send ever-richer content to each other around the world, we believe this theme represents an opportunity for investors.
In order to capitalize on the Data Deluge, we have investments in companies across the communications satellite industry.
So, what effect might “Brexit” – a British exit from the European Union – have on this industry? What changes might it require of French companies providing satellite broadcasts to television viewers in the UK? Or to UK companies providing data transmission to clients in countries throughout the EU?
How Brexit May Impact the Satellite Communications Industry
The most important question in this regard is, who regulates these companies and how does that regulation work? Specifically, who writes the rules regarding their frequency rights and might the identity of that regulator and any of those rules change should a Brexit occur?
The regulation of the international communications satellite industry is one of the better examples of enlightened global cooperation. In this case, the regulator is the International Telecommunications Union, a supranational body that operates under the aegis of the United Nations. It treats the satellite frequency spectrum as a public good, allocating it to communication providers on the basis of the development plans they have for it.
For instance, one may propose a plan to launch a satellite to provide mobile telephone service to a particular region of the earth. The ITU reviews the proposal and, if it is deemed to be in the best interest of the public, grants the necessary frequency rights to the applicant. The applicant must then launch their satellite and begin providing the proposed service within a given period of time, usually a few years.
Furthermore, the ITU grants frequency rights in perpetuity. A satellite company that has the right to use a particular frequency to transmit content of any kind from one area of the earth to another has that right for as long as it can provide the service.
Satellite companies have plenty of issues to deal with in their business, but worry over having their frequency rights—the sine qua non of their business—taken away or the rules for using it changed, is not one of them. Regardless of the outcome of a Brexit vote, there will be no changes to the regulator or the rules of the industry.
How Brexit Could Affect Foreign Currencies
Beyond that, foreign currency issues are the only operational aspect of their business that may be directly affected by a “Brexit.”
As international operators, satellite companies have revenues and costs in various parts of the world. They receive revenues and pay expenses in many currencies, and they translate those flows into the currency in which they report results. Many expect that if the UK electorate votes for Brexit, the euro will fall in relation to the U.S. dollar and the British pound will fall in relation to both of those currencies.
Should that be the case, the translation effect would flatten the results of some of the companies we follow and detract from the results of others. It is important to remember, however, that the effect of foreign exchange translation on earnings is a short-term, cosmetic effect, not a basis for investment decisions.
For additional insights on potentially profitable long-term trends, view the full archive of George Evans’ GrowthSpotting series.
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FOREIGN INVESTMENTS MAY BE VOLATILE AND INVOLVE ADDITIONAL EXPENSES AND SPECIAL RISKS, INCLUDING CURRENCY FLUCTUATIONS, FOREIGN TAXES, REGULATORY AND GEOPOLITICAL RISKS. EUROZONE INVESTMENTS MAY BE SUBJECT TO VOLATILITY AND LIQUIDITY ISSUES.
OFI Global Asset Management (“OFI Global”) consists of OppenheimerFunds, Inc. and certain of its advisory subsidiaries, including OFI Global Asset Management, Inc., OFI Global Institutional Inc., OFI SteelPath Inc. and OFI Global Trust Company. The firm offers a full range of investment solutions across equity, fixed income and alternative asset classes. The views herein represent the opinions of OFI Global and are subject to change based on subsequent developments. They are not intended as investment advice or to predict or depict the performance of any investment. The material contained herein is not intended to provide, and should not be relied on for, investment, accounting, legal or tax advice. Further, this material does not constitute a recommendation to buy, sell, or hold any security. No offer or solicitation for the sale of any security or financial instrument is made hereby.