Industry and Sector Analysis: Telecom and Utilities

Estimated read time: 5 minutes

Strategic investing requires research. It requires dedication. If you are thinking about expanding your investments or just getting started, you will need to consider several factors. These include the companies you invest in, how much you will invest, and how long you hope to hold securities for.

One of the most promising sectors for investors is that of telecommunications & utilities. This sector and its associated industries and sub-industries offer great ways to propel your portfolio to rewarding returns.

Industry Outlook Summary

Telecommunications are what drive communication around the world and are in an era of innovation and investment. As such, this sector is ripe with investment opportunities.

The sector is divided into two main industries which are subdivided into smaller sub-industries.

Wireless telecommunication services

This is the area made up of companies within the wireless telecommunication industry that directly provide cell phone or wireless services to both commercial and residential consumers. Think of the big ones such as At&T, Verizon, Comcast/Xfinity, and Sprint.

Diversified telecommunication services

Sub-industries of this industry are integrated telecommunication services and alternative carriers. Both of these sub-industries used wired or cable methods of providing service. Think high bandwidth companies, fiber optic networks, and wired telecom providers.

Business is booming

Both of the industries within the telecommunications sector are booming. Especially in today's data driven world, communications technologies are critical. What's more is that technologies, especially those related to telecommunications and utilities, are constantly evolving and adapting to new market trends.

There are both market disruptors and tested veterans as part of the telecommunications sector. This creates opportunities for both high-risk, high-reward opportunities and safer, slow growth investment strategies.

An important note to make about this sector is it does not include companies who directly provide cable or broadcast radio, nor does it include those that produce the hardware used in telecommunications services (cell phones, computers, etc.). Rather it is those companies that provide communications frameworks and channels through which communications can be made that comprise the telecommunications and utilities sector.

This makes many of the companies within the sector larger and well-branded. Market disruptors are few and far between, and they are often eventually purchased by the larger companies to strengthen their hold on the market.

External Influencers

Companies within the telecom and utilities sector command a lot of control and influence, yet they are not subject to outside pressures, market trends, and regulations.

Both private and public interests demand telecommunications technologies. They are utilized 24/7, 365 days a year. As such, the telecommunications sector is heavily pressured by outside influences related to maintaining a particular level of performance. This demand for being always connected means the sector is under pressure to deliver, and fast. Consumers expect the fastest speeds, or they will look for something else. That's why innovation is the name of the game in telecom and utilities. The faster they can adapt new technologies that improve delivery and efficiency, the better.

A significant influencer on the telecommunications sector is power. Technology requires a lot of power. Telecommunications is built from technology. Due to this, the telecommunications sector is one of the largest users of power in the world. When the price of power increases, so do costs associated with telecom at large. That's why telecom companies are always looking for cheap alternatives to traditional power sources.

One other big influencer is the regulations and laws that hold the telecommunications sector in check. Much of these relate to how large companies within the sector can get or how much control they have over raising their rates and related services. Since governments recognize the critical nature of communications and accessibility to technology, many rules, laws, and regulations have been passed that protect the public from the telecommunications sector taking too much control.

Technology and Associated Risk

The technology that powers communications is largely supplied by the power and industrial sectors. The power sector's influence was described above. Renewable energy sources, traditional energy sources, and other forms of power heavily influence the ability of telecom to provide goods and services to the market. Sector investment in energy is high because of this. Companies in the telecom sector adopt emerging energy technologies and often place large bets on emerging providers of alternative energy.

The industrial sector's influence on telecom is evidenced through the supplies it takes to build telecom frameworks. These can be electrical or structural in nature. As new technologies emerge, the telecom sector looks for new, efficient ways to deliver the technology to as many consumers as possible. That's why they must actively seek the best industrial sources that will both keep their costs low and provide consistent service at levels expected by their customers.

Placing big bets on emerging trends can prove risky for the telecom sector. Sometimes they don't prove cost effective and harm ROI. Even worse, they sometimes hinder performance and upset customers.

More than that, however, there is an inherent psychological risk making consumers wary of investing in this sector. That risk is associated with security risks and data breaches commonly associated with cyber attacks. As criminals become more technologically advanced, consumers are demanding more secure frameworks. The more breaches that occur, the more trust is lost in telecom companies. This can turn an investment sour in a hurry, making telecom investments prone to big, immediate crashes.

How to Invest in Telecom and Utilities

Methods of investing in the telecom sector are the same as in any other. One can pursue individual stocks or trade in multiple offerings through mutual funds, ETFs, financial advisors, or other investment services. There are many mutual funds and ETFs that pay close attention to companies in the telecommunications sector. Some of the most popular are the Vanguard Telecommunication Services ETF (VOX), SPDR S&P Telecom ETF (XTL) and the T. Rowe Price Media & Telecommunications ETF (PRMTX).

Don't think you have to invest in a mutual fund or ETF to make a profit, however. Large companies such as Verizon, AT&T, and Sprint all provide valuable opportunities for individual security investment. These telecom companies are often easy to track, predict, and forecast, so long as you know how to do your research and competitor analysis. Constant innovation and adoption of new technologies is a key thing to watch out for.

Lucrative investment opportunities are one of the reasons why you should have a strategy for saving. The telecom and utilities sector is an industry many look to for slow, safe investment plays. Research into the sector shows this can be a smart move, especially if you align with the right companies, mutual funds, or ETFs.