The GAMCO Global Telecommunications Fund - Gabelli

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Cincinnati Bell Inc. (2.3%) (CBB - $4.02 - NYSE) is a full-service regional provider of data and voice communications services over wireline and wireless networks in the Greater Cincinnati and Dayton, Ohio areas, serving 621,000 access lines, 257,000 broadband connections, and 459,000 mobile subscribers. CBB also provides business customers with outsourced data center colocation and related managed services in state-of-the-art data center facilities, primarily located in Cincinnati, Houston, Dallas, and Austin (the company operates 20 data centers with 763,000 square feet of space). Cincinnati Bell is also a reseller of information technology (IT) and telephony equipment. In February 2012, CBB announced that its Board has authorized the company’s management to pursue evaluation of structural, capital, and financial alternatives for its data center business. CBB will consider options that may include, among others, operating the Data Center business under the current structure with no changes, a partial separation through a sale, initial public offering, or other transaction, or, depending on the value to shareholders, a full separation. The evaluation of these alternatives will include an assessment of the structure that will optimize shareholder value while ultimately leaving Cincinnati Bell with an appropriate level of debt for its Communications business. This evaluation is expected to take 6 to 12 months. Deutsche Telekom AG (2.5%) (DTE GR - $12.05 - Frankfurt Stock Exchange) is the incumbent German telecom provider, with substantial international holdings in Eastern and Southeastern Europe. Following the decision by AT&T not to pursue the acquisition of Deutsche Telekom T-Mobile USA unit (owing to staunch regulatory opposition), the business has been tasked with operational turnaround and the technology upgrade of the network. The latter effort is aimed at enabling T-Mobile USA to introduce LTE service covering nearly 200 million people by 2013. In parallel, Deutsche Telekom is believed to be continuing to consider strategic options for the U.S. business. In the domestic German market, DT is beginning to make good progress with its TV product after an admittedly slow start and successfully defending its 45% broadband market share against cable and other alternative operators. Although DT’s fiber-to-the-home (FTTH) network currently only covers less than 10% of German households, the strong desire by the government to see this ratio increase should translate into regulatory and political support. Finally, continued aggressive cost cutting measures are succeeding in sustaining domestic margins, even in view of continued pricing pressure in traditional telephony. Deutsche Telekom trades at an attractive multiple of 4.6x 2012 EBITDA with a current return of 7.8%. DIRECTV (4.1%) (DTV - $49.34 - Nasdaq) is the largest pay television provider in the world, with over nineteen million subscribers in the U.S. and eight million throughout Latin America. Originally part of General Motors, DTV used its technological advantage, a focus on high income customers, recognition of the necessity for superior customer service, and clever (Sunday Ticket) participation in exclusive sports programming to cement its position in the U.S. The company used essentially the same strategy in Latin America, where it is benefiting from the growth of the middle class in countries such as Brazil and Colombia. Atop a superior operating business, DTV has layered a capital structure that maximizes equity returns. The company has used modest leverage to repurchase stock, in the process cutting its shares outstanding by more than half over the last three years. We expect CEO Mike White to continue on this path for the foreseeable future. DISH Network Corp. (2.7%) (DISH - $32.93 - Nasdaq) is the third largest pay TV provider in the U.S., with nearly 14 million subscribers. As a satellite operator unburdened by local franchising requirements and wired plant, DISH can market and deliver video extremely efficiently across the entire country. Under the leadership of Charlie Ergen, founder and owner of approximately 54% of company shares, DISH has explored options for adding mobility to its service offerings, including through the acquisition of spectrum. The company has begun to integrate its 2011 acquisition of the Blockbuster DVD “rentail” chain by enriching its basic offering with a DVD and on-demand movie service. Ultimately, we believe DISH could make an attractive acquisition target for a traditional telecom operator. 6
Liberty Global Inc. (2.9%) (LBTYA - $50.08 - Nasdaq; LBTYK - $47.89 - Nasdaq) is the leading international cable operator, offering advanced video, telephone, and broadband internet services. The company operates broadband communications networks in 14 countries principally located in Europe operating under the brands UPC, Unitymedia (Germany), Cablecom (Switzerland), Telenet (Belgium), VTR (Chile), and AUSTAR (Australia). Liberty Global’s operations also include significant media and programming businesses such as Chellomedia, a world class multimedia content provider based in Europe. The company is internationally focused and well positioned to capitalize on the growing demand for digital television, broadband internet, and digital telephony (VoIP) services in markets across its diverse geographic footprint. In a continued effort to sharpen its focus on Western Europe, Liberty has agreed, pending regulatory approval, to sell its controlling stake in AUSTAR (less than 0.02%). NII Holdings, Inc. (0.8%) (NIHD - $18.31 - Nasdaq) is a wireless carrier focused primarily on business customers in Latin America. NIHD serves 10.7 million customers in Brazil, Mexico, Argentina, Peru, and Chile, utilizing iDEN and WCDMA network technologies. In May 2011, the company held an analyst and investor meeting in Lima, Peru, where it successfully demonstrated that its push-to-talk (PTT) technology works over WCDMA (3G), with no noticeable difference in latency or call quality between iDEN and WCDMA PTT experience. Management also provided aggressive five year revenue, EBITDA, and subscriber growth targets. NII expects to grow its subscriber base by more than 2.5 times over the next five years and more than double revenues and EBITDA over the same period. In February 2012, NIHD indicated that it will have to somewhat push out the start dates for 3G commercial network launches as it was experiencing construction-related delays (e.g. pace of site acquisition, delays in construction equipment delivery, etc.). As a result, based on an updated timetable, 3G is expected to be made available in Mexico in late third quarter and in Brazil by the end of 2012. While positive catalysts are unlikely until the second half of the year, NIHD’s longer-term growth prospects remain intact. NII is trading at under 4x 2012 estimated EBITDA and at a significant discount to its private market value. The company is a likely long-term acquisition target for larger carriers or private equity firms, given its strong brand name in Latin America and valuable (predominantly postpaid) customer base. Rogers Communications Inc. (2.9%) (RCI - $39.70 - NYSE) is one of the few companies in North America to offer consumers the “Quadruple Play” of video, high speed data, and fixed and wireless telephony through a wholly owned plant. The company, founded by late telecom pioneer Ted Rogers, is Canada’s largest cable and wireless company. As the largest spectrum owner in North America, Rogers is aggressively deploying the next generation of wireless services. Rogers also has a substantial media business that operates radio stations, television networks (including The Shopping Channel), magazines, and trade publications, and the Toronto Blue Jays baseball team. In December 2011, the company increased its presence in the lucrative sports market by purchasing a stake in the parent of the Toronto Maple Leafs (NHL) and Raptors (NBA). Prior investments and acquisitions, combined with significant operational improvements, have positioned Rogers for cash flow growth for the next several years. Telefonica SA (3.6%) (TEF SM - $16.41 and $16.38 - Madrid Stock Exchange) has telecommunications businesses spanning Europe and Latin America, which constitutes 43% of group revenue. In the fourth quarter, Telefonica reported a 0.5% decline in organic revenue, driven largely by a recovery in Latin America. Here, a top line gain of 5.3% came as a result of strong performance in the Brazilian mobile business (Vivo), and fixed line gains in Argentina and Peru. In order for Telefonica to achieve its 2012 guidance of at least 1% group revenue growth, Latin America will have to continue growing at a comparable rate to the fourth quarter, owing to the expected weakness in Spain and limited, if any, growth in the rest of Europe. In Spain, Telefonica has 7
Page 1 and 2: The GAMCO Global Telecommunications
Page 3 and 4: Global Allocation The accompanying
Page 5: Let’s Talk Stocks The following a
Page 9 and 10: Conclusion As we stated at the conc
Page 11 and 12: Mandatory Cost Basis Reporting As p
Page 23 and 24: ______________________ VALUE Gabell

The GAMCO Global Telecommunications Fund - Gabelli

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