Based on extreme industry weakness in late 2008 and early 2009, we believe valuation levels now reflect remedial conditions in the economy. Depressed stock prices foster improved investment entry points more favorable at this juncture should stimulus plans, restricted operating expenses and higher earnings level result along with sustainable purchasing activity.

Telecom companies are starting to report minimal financial improvements in terms of revenue and earnings levels. In addition, economic stimulus plans throughout the world, including the U.S. broadband infrastructure development program -- and similar structural subsidies in China and India -- may be a boon for selected service providers and equipment manufacturers.

Telecom carriers and equipment providers that offer the most attractive opportunities are focused on third-generation (3G) wireless, broadband (DSL) and fiber-to-the-home/node networking. There are also a few market leaders that have proven able to survive the sometimes turbulent opportunity swings in the industry.

It is our belief that in this uncertain stage of macroeconomic events, companies with strong balance sheets and firm net cash positions, along with sustainable dividends, provide respectable risk/reward profiles. On the other hand, highly-leveraged companies should be avoided, at least at this possible economic inflection point.

OPPORTUNITIES

The transient collapse of financial markets has become an indelible lesson to many of us. With this, we have seen that sector diversity is a less secure planning tool in today's increasingly correlated world markets. However, there are some tactics and opportunities that may be appropriate to address the downturns in the telecom industry, should we be greeted with them again. We consider the following:

• Necessity for Telecommunications - The need for telecom in both rural and urban areas, and its role in the infrastructure of both developed and developing markets, continues to grow. Wireless infrastructures and/or low-cost integrated IP voice and data wireline networks are necessities. In fact, most global subscribers will not give up their wireless phones and services that easily, although upgrades to advanced (high-end) handsets/offerings may be sensitive to overall consumer/business budgets. This is accompanied by telecom carriers' continued quest for operational flexibility and streamlining?? ?
• International Diversification - While country diversification offers only limited protection in the current highly-correlated world equity markets, it offers hedging capabilities from local economic weakness and associated currency exchange differentials.