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Don't Miss Out on Telecom Momentum

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Telecommunications is one of the few industries to have undergone rapid technological improvements during the recession. An era of digitization and technology has essentially been built on the very human need to remain connected. It is in this context that telecommunications comes to the fore as a necessary utility. The rising demand for technologically superior products offers a silver lining to the telecom industry in an otherwise tough environment.

Future Growth Driver: Internet of Things

We expect wireless networks to provide the primary impetus to the telecom industry. In this regard, Internet of Things (IoT) has the potential to emerge as the #1 factor for future growth in the space. The IoT is a network of physical objects embedded with electronics, software, sensors and connectivity that enables it to achieve greater value and service by exchanging data with other connected devices. Machine-to-machine (M2M) communications is a key example. IoT needs superfast wireless links to run effectively. This signals massive growth potential for the telecom industry.

Expansion of Fiber Optic Network

The fiber optic network is increasingly becoming the most sought-after technology for secure and fast data transmission over long distances. Going forward, the wireline industry will largely evolve around fiber-based superfast gigabit data transmission network.

In this regard, Verizon Communications Inc. ( VZ ) has decided to launch a fiber-to-the-premises (FTTP) network for both residential and business customers to deliver an exceptional 10 Gbps (gigabit per second) of upload and download speeds. Alphabet Inc.'s ( GOOGL ) fiber network currently offers 1 Gbps of speed while Comcast Corp.'s ( CMCSA ) "Gigabit Pro" provides 2 Gbps of residential broadband Internet speed. AT&T Inc. ( T ) is gradually expanding its super-fast fiber optic broadband service - GigaPower. AT&T's service offers 1 Gbps Internet speed to both residential and small business customers.

Geographical Expansion

Cutting across barriers has become common among telecom players. The motive is to offer better service and customer convenience. In Feb 2015, AT&T launched a service which allows its prepaid GoPhone customers, on $60 data plans, the benefit of unlimited calling from the U.S. to Mexico without any additional charge. The company's postpaid customers on World Connect Value plans can also avail unlimited calls to Mexico with a $5 add-on.

Meanwhile, T-Mobile US Inc. ( TMUS ) introduced an innovative "Mobile Without Borders" plan through which its subscribers will be able to make calls to Canada and Mexico without paying any roaming charges. America Movil S.A.B. ( AMX ) has also unveiled a pan-North American roaming charge free calling facility covering Mexico and the U.S. which will be further extended to Canada.

In Apr 2015, Sprint Corp.'s ( S ) prepaid service division - Boost Mobile - launched an unlimited voice call and text message service plan to enhance connectivity between U.S. inhabitants and their friends and family in Cuba.

In Mar 2016, Verizon Partner Solutions, a division of U.S. telecom behemoth Verizon entered into an agreement with Cuba's state-run telecommunications company Empresa de Telecomunicaciones de Cuba to offer direct roaming mobile interconnection services between the two countries. Notably, in Sep 2015, Verizon became the first U.S. telecom operator to offer roaming wireless services in Cuba.

Opportunities

The telecommunications industry as a whole offers a number of positives that are difficult to disregard from the standpoint of investors.

  • Immune to External Disturbances: A major characteristic of the telecommunications industry is that it is immune to any international geo-political disturbance even when it leads to economic fluctuations. Thus, the ongoing sovereign debt crisis in Europe, the slowdown in China or other non-U.S. economic volatility is not expected to have any immediate impact on the industry.
  • Barrier to Entry: The lack of public airwaves (spectrum) in the telecommunications industry creates a high barrier to entry. The U.S. telecom market is controlled by just four national players, as regional low-cost operators are not eligible to compete with large carriers. Furthermore, it is not easy for a new telecom carrier to establish itself in the market as it requires government approval to transmit voice, data, and video on public airwaves. Spectrum licenses are limited and are therefore quite expensive. Moreover, the deployment of network infrastructure requires significant capital expenditure, which very few entities can afford. Thus, this barrier protects the profits of incumbents in the telecom space.
  • Strong Demand: A recovering economy speeds up the demand for real-time voice, data, and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions while upgrading plans. Moreover, the FCC projects mobile data demand to grow 25-50 folds over the next five years.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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