Telecommunication Services Sector

Telecommunication Services is one of the ten Global Industry Classification Standard (GICS) economic sectors. The telecommunication services sector consists of companies offering fixed-line and wireless telecommunication networks for voice and data. Companies like wireless phone service provider T-Mobile, internet service provider EarthLink, and phone service providers like AT&T and Sprint all belong to this sector.

Telecommunication Services is one of the ten Global Industry Classification Standard (GICS) economic sectors. The telecommunication services sector consists of companies offering fixed-line and wireless telecommunication networks for voice and data. Companies like wireless phone service provider T-Mobile, internet service provider EarthLink, and phone service providers like AT&T and Sprint all belong to this sector.

Sometimes referred to simply as “telecom,” the telecommunication services sector has a significant social, cultural, and economic impact on modern society. In 2008, this sector accounted for $4.7 trillion in revenues: the equivalent of just fewer than three percent of the gross world product for that year.

Understanding the Telecommunication services Sector

The telecommunication services sector has experienced huge growth over the last few years despite enormous competition. As a result, many of these companies offer their investors great dividends. Numerous companies follow similar business models, in which revenue streams come from locking consumers into contracts of one or more years. However, the rapid pace of technological development in the telecommunication services sector has led to significant upheaval and expense for these companies, as well. Efforts to stay abreast of the latest wireless technologies, for example, have cost cell phone services billions in infrastructure costs.

Once dominated by a handful of titans, the telecommunication services sector now sees a number of new participants enter the market each year while others depart. Customer loyalty has also begun to wane in recent years, particularly in light of new offerings that allow customers to pay-as-they-go rather than lock in for longer contract periods.

Companies in the telecommunication services sector usually break down into telephone companies, cable companies, satellite service providers, mobile service providers, and telecom device manufacturers. The telecommunication services sector tends to overlap with, and track parallel to, the information technology sector.

Due to its similarities to the information technology sector, the telecommunication services sector tends to be underappreciated and misunderstood. Many investors and financial professionals believe this sector indistinguishable from information technology, and they assess sector performance and investment decisions based on that analysis. However, a number of factors uniquely affect the telecommunication services sector, such as government regulations, trends in service offerings, and unique consumer demands.

Investing in the Telecommunication Services Sector

As with most sectors, it is possible for investors to purchase stocks for individual companies or to use mutual funds of exchange-traded funds (ETFs) to explore opportunities in the telecommunication services sector.  Unlike most sectors, a relatively small number of companies dominate the sector, with others in the sector largely supporting those companies with products or supplemental service offerings. This can lead to a domino effect: when the fortune of one company rises or falls and carries the prosperity of another company along with it. Thus, thorough research is the best way to identify acceptable investment options in the telecommunication services sector, but thorough vigilance will be required to maintain the viability of that selection. Some investors may find this level of understanding hard to acquire, so the use of financial managers or simply investing in managed funds may be the optimal approach.