At this point, it's no secret that smartphones have become an integral part of many people's lives. The adoption of these devices has grown rapidly, and by the end of 2011 the vast majority of American cell phones were smartphones. Overall, analysts estimate that global usage of the mini-computers will continue to explode upwards. To that end, the technology sub-sector funds like the First Trust NASDAQ CEA Smartphone ETF (Nasdaq:FONE) have also grown in popularity as investors try to cash in on the trend. However, as these devices have become commonplace, a new problem has been created: a mobile data crunch. For investors, alleviating this network congestion could be a bigger play than the smart phones themselves.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

A recent survey by network specialist Cisco (Nasdaq:CSCO) highlights the potential problems with our mobile data traffic. The firm's "Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2011-2016" report showed that global mobile data grew by 133% during 2011. This was the fourth year that traffic more than doubled. Putting the amount in perspective, global mobile data traffic during 2011 averaged 597 petabytes per month. That was over eight times greater than the total global Internet traffic during 2000.

Despite the fact that average smartphone data usage tripled during previous year, Cisco predicts that network owners haven't seen anything yet. Looking out to 2016, the tech firm predicts that mobile data traffic will be 18 times larger than it is today. More than 100 million smartphone users worldwide will download over 1 GB of data per month. Given that telecom providers like Sprint (NYSE:S) have already had trouble with network congestion, serious dollars will need to be spent in order to upgrade this infrastructure.

How much? According to IHS iSuppli, global CAPEX spending on Long Term Evolution (LTE), technology will reach $24.3 billion by 2013 and more than $36 billion by 2015. From 2009 to 2010, AT&T (NYSE:T) spent $3.5 billion improving networks in Illinois alone. LTE networks promise greater spectral efficiency and higher data rates than predecessor technologies. Prompted by growing consumer demand, the LTE infrastructure equipment market will grow by 45% during the next five years. However, this spending doesn't even take into account Wi-Fi rollouts, 3.5G upgrades and data center equipment.

Playing the Data Crunch
As telecoms try and keep pace with growing data demands, the potential for portfolios is certainly great. Given the spending needed to achieve and accommodate this higher data traffic, investors may want to add some exposure to the trend. The iShares S&P North American Tech-Multimedia Networking ETF (ARCA:IGN) tracks 32 different networking communications firms including QUALCOMM (Nasdaq:QCOM) and Juniper Networks (NYSE:JNPR). The exchange-traded fund charges .48% in expenses and can provide a broad play on the theme. Likewise, the PowerShares Dynamic Networking (ARCA:PXQ) can be used as well.

One of the more interesting developments in the mobile data crunch has been the development of "White Spaces." At their core, white space is essentially TV broadcast channels that became available to telecoms when television made the switch from analog to digital. Using a TV Band enabled device, network firms can move more data through a white space network than traditional Wi-Fi. However, the Federal Communications Commission has only granted a few firms to dabble in the technology. Aside from tech-stalwarts like Google and Mr. Softy, which can play with the technology, mid-cap NeuStar (NYSE:NSR) could be a white space winner. The firm provides a variety of networking and telecomm capabilities, but its future white space offerings could make it a great growth stock. Shares of the firm currently trade for cheap forward P/E of 13.

No matter if it's LTE, 3.5G or white spaces, the makers of wireless infrastructure semiconductors will benefit. Chip companies like Texas Instruments (Nasdaq:TXN) and PMC-Sierra (Nasdaq:PMCS) should continue to benefit as more high data networks will need to be built.

The Bottom Line
As smartphones continue to become more prevalent in today's society, their data demands will continue to wreack havoc on our communications networks. This pending data crunch will have carriers spending big amounts on upgrading and improving network speeds and bandwidth. For investors, betting on this surge in data could be a great portfolio play. The previous picks along with, JDS Uniphase (Nasdaq:JDSU) make ideal selections to play the trend.

Use the Investopedia Stock Simulator to trade stocks mentioned in this stock analysis, risk free!

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  6. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  7. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  8. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  9. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  10. Forex Fundamentals

    How to Buy Chinese Yuan

    Discover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center