The telecommunication sector is made up of companies that make communication possible on a global scale, whether it is through the phone or the Internet, through airwaves or cables, through wires or wirelessly. These companies created the infrastructure that allows data in words, voice, audio, or video to be sent anywhere in the world. The largest companies in the sector are telephone (both wired and wireless) operators, satellite companies, cable companies, and Internet service providers.
Not long ago, the telecommunications sector consisted of a club of big national and regional operators. Since the early 2000s, the industry has been swept up in rapid deregulation and innovation. In many countries around the world, government monopolies are now privatized and they face a plethora of new competitors. Traditional markets have been turned upside down, as the growth in mobile services outpaces the fixed-line and the Internet starts to replace voice as the staple business.
The telecommunications sector consists of companies that transmit data in words, voice, audio, or video across the globe.
Telecom equipment, telecom services, and wireless communication are the three basic sub-sectors of telecommunications.
Telecom has become increasingly focused on video, text, and data, as opposed to voice.
Telecommunications companies can appeal to both growth- and income-oriented investors.
Although individual stocks can be quite volatile, the telecom sector overall has exhibited stable long-term growth, as telecommunications has become an increasingly important basic industry, impervious to business cycles.
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Evolution of the Telecommunications Sector
The telecommunications industry began in the 1830s, with the invention of the telegraph, the first mechanical communications device.1 It shortened communication from days to hours—much as modern mobile technology has shortened the time span of sending large amounts of data from hours to seconds. The industry broadened with each new invention: the telephone, radio, television, computer, mobile device. These technological advances changed how people live and do business.
At one time, telecommunications required physical wires connecting homes and businesses. In contemporary society, technology has gone mobile. Now, wireless digital technology is becoming the primary form of communication.
The sector's structure has also changed from a few large players to a more decentralized system with decreased regulation and barriers to entry. Major public corporations act as the service providers, while smaller companies sell and service the equipment, such as routers, switches, and infrastructure, which enable this communication.
How Telecommunications Companies Make Money
Plain old telephone calls continue to be the industry's biggest revenue generator, but thanks to advances in network technology, this is changing. Telecom is growing less about voice and increasingly about video, text, and data. High-speed Internet access, which delivers computer-based data applications such as broadband information services and interactive entertainment, is rapidly making its way into homes and businesses around the world. The main broadband telecom technology, Digital Subscriber Line (DSL), has ushered in a new era. The fastest growth comes from services delivered over mobile networks.
Of all the customer markets, residential and small business markets are arguably the toughest. With literally hundreds of players in the market, competitors rely heavily on price to slog it out for households' monthly checks; success rests largely on brand name strength and heavy investment in efficient billing systems.
The corporate market, on the other hand, remains the industry's favorite. Big corporate customers, who are concerned mostly about the quality and reliability of their telephone calls and data delivery, are less price-sensitive than residential customers. Large multinationals, for instance, spend heavily on Telecom infrastructure to support far-flung operations. They are also happy to pay for premium services like high-security private networks and video conferencing.
Telecom operators also make money by providing network connectivity to other telecom companies that need it, and by wholesaling circuits to heavy network users like Internet service providers and large corporations. Interconnected and wholesale markets favor those players with far-reaching networks.