The GAMCO Global Telecommunications Fund - Gabelli

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ecome much more aggressive on price, in an effort to slow market share erosion in both fixed and wireless. The initiatives and promotions in broadband introduced in the second half of 2011 are already showing benefits in terms of market share stabilization, although at the expense of top line performance. In mobile, new tariff plans were introduced late in the year. While these could stem market share losses, the very weak macro conditions in Spain are hurting mobile metrics. In the fourth quarter, Telefonica saw mobile traffic decline by 7% and service revenue fell by 12.9%. In Europe, Telefonica (O2) performance has been mixed, with disappointing margins in the UK, but strong share gains and top line performance in Germany. Concerns about the economic environment in Spain, coupled with the dividend cut announced in December have driven Telefonica shares to levels not seen in more than a decade. The stock trades at 5.2x 2012 EBITDA and still carries a current return of 10.8%. Telephone & Data Systems, Inc. (2.6%) (TDS - $23.15 - NYSE), based in Chicago, IL, is a telecommunications company primarily with wireless and rural local exchange wireline operations. The company’s 84% owned subsidiary, U.S. Cellular Corporation (3.8%), is the seventh largest wireless operator in the United States, providing service to 5.9 million subscribers. TDS Telecom, the wireline unit, serves 1.1 million access line equivalents in 30 states (largest presence in Wisconsin and Michigan). In August 2011, TDS announced a plan to reclassify Special Common shares into Common shares without changing voting control (i.e. “freezing” voting power of Series A and Common Shares at current levels). The company believes that the above plan should simplify TDS capital structure, improve liquidity, and provide TDS with greater financial flexibility. After the company failed to receive majority of non-affiliated common shareholder votes for the original plan, it revised the exchange ratio under the share reclassification proposal to 1.087 common shares for each old common share (previously, TDS proposed to exchange each old common and special common share into one new common share). The revised share reclassification proposal was approved by shareholders on January 13, 2012 and special common shares stopped trading on NYSE on January 25, 2012. Verizon Communications Inc. (3.6%) (VZ - $38.23 - NYSE) is one of the world’s leading telecommunications services companies, serving 24.1 million access lines and 8.7 million broadband connections. VZ also owns a controlling 55% interest in Verizon Wireless, the largest wireless carrier in the United States with 109 million mobile customers. The company is focused on building on its wireless broadband, FiOS, and global internet backbone networks by putting together unique, integrated solutions that can be delivered to any device, giving customers new ways to manage their digital lives and transforming how businesses operate. Verizon Wireless plans to complete its nationwide build-out of 4G LTE by mid-2013 (at 12/31/11, it reached 200 million people in 195 markets with LTE). In December 2011, Verizon Wireless agreed to acquire 122 Advanced Wireless Services (AWS) spectrum licenses from a consortium of cable companies (Comcast (0.3%), Time Warner Cable (0.3%), and Bright House Networks) for $3.6 billion. The companies also announced that they have entered into several agreements focused on re-selling one another’s products, and, over time, the cable companies will have the option of selling Verizon Wireless’ service on a wholesale basis. 8
Conclusion As we stated at the conclusion of 2011, ‘While sub-par economic growth looks set to continue in Europe in 2012, the apparent decoupling of the U.S. market and American telcos from their European peers may offer a clue for the Telecom Fund’s geographic bias in 2012.’ What has also become apparent thus far in 2012 is that the growth in emerging markets may offer a useful means to drive Fund outperformance. Finally, we will seek those names in the universe that look best positioned to capitalize on the continued dramatic gains in mobile data around the world. 2012 will see major strides in fourth generation, LTE network deployment which could act as a catalyst for those operators that can capture and monetize the insatiable demand for data. April 4, 2012 Sincerely, The GAMCO Global Telecommunications Fund Portfolio Management Team Top Ten Holdings (Percent of Net Assets) March 31, 2012 DIRECTV 4.1% United States Cellular Corp. 3.8% América Móvil S.A.B de C.V., Cl. L, ADR 3.7% Telefonica SA 3.6% Verizon Communications Inc. 3.6% Rogers Communications Inc. 2.9% Liberty Global Inc. 2.9% DISH Network Corp. 2.7% AT&T Inc. 2.6% Millicom International Cellular SA 2.6% Note: The views expressed in this Shareholder Commentary reflect those of the Portfolio Managers only through the end of the period stated in this Shareholder Commentary. The Portfolio Managers’ views are subject to change at any time based on market and other conditions. The information in this Portfolio Managers’ Shareholder Commentary represents the opinions of the individual Portfolio Managers and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Views expressed are those of the Portfolio Managers and may differ from those of other portfolio managers or of the Firm as a whole. This Shareholder Commentary does not constitute an offer of any transaction in any securities. Any recommendation contained herein may not be suitable for all investors. Information contained in this Shareholder Commentary has been obtained from sources we believe to be reliable, but cannot be guaranteed. 9
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