The Telecommunications Sector



Before wires and virtual networks transmitted communications, there were smoke signals, drums and carrier pigeons. Fortunately, technology has come a long way since then to the point where it’s impossible to overstate the significance of telecommunications technology to any business, especially as it relates to growing the capacity of small businesses. From telephones, facsimile, television, Internet and the vast array of private networks, telecommunications technology is like your firm’s central nervous system. Without it, a small business couldn’t compete or survive in the nation’s information service-dependent economy, making it one of the most important investments you’ll make as you build your business. Telecommunications technology has many roles, including transmitting information, improving efficiency and productivity and helping businesses expand.


The telecommunications sector evolved from the telegraph, where communication took days, to modern mobile technology, where large amounts of data can be sent in seconds. These shifts are due to technology, and they changed how people live and do business. At one time, telecommunications required physical wires connecting homes and businesses. In modern society, this is changing with mobile technology and wireless technology becoming the primary form of communication.

The sector’s structure has also changed from a few large players to a more decentralised system with decreased regulation and barriers to entry. Other than the service providers, smaller companies in the telecommunications sector sell and service the equipment, such as routers, switches and infrastructure, which enable this communication. For growth investors, these companies provide the best opportunities for share price appreciation. In contrast, larger companies tend to be havens for conservative, income-focused investors.

The evolution of the telecommunications industry in the U.S. centers on five main factors. Wireless Internet is quickly becoming the industry’s future, and its popularity is consistently increasing revenue. Also, an expansion of high-speed, fiber-based networks is expected. In addition to these elements, a shortage of airwaves has caused a consolidation within the industry.The fifth factor is the copious potential for growth. As of 2016, the Federal Communications Commission (FCC) reports that approximately one-fifth of the rural American population does not have access to broadband networks.

However, the ultimate determination for growth is wireless Internet. This piece of the industry is the anticipated keystone for the continued global expansion of the telecommunications sector. Furthermore, this industry has experienced a shift in focus from voice calls to video and data. There is increasing demand for speedier data connectivity, higher resolution, quicker video streaming and ample multimedia applications.

Segments Within the Telecommunications Sector

The major segments within the telecommunications sector are wireless communications, communications equipment, processing systems and products, long-distance carriers, domestic telecom services, foreign telecom services and diversified communication services. The fastest growth area within the sector is wireless communications, as more and more communications and computing shift to mobile devices. Looking forward, the sector’s biggest challenge is to keep up with people’s demand for faster connections as they consume and create content, which requires significant capital expenditures. Companies that can meet these needs thrive.

Outlook for the Telecommunications Sector

Analysts foresee that product innovation and an increase in mergers and acquisitions will only facilitate the continued growth and success of the telecommunications industry. There are many opportunities for investors, and an increase in investors will only serve to benefit the sector further.

The long-term historical growth rate of the telecommunications sector averages to a fairly stable rate of approximately 3% per year. The stability of the sector’s growth even during recession means that it is considered to be a solid defensive investment, while maintaining its appeal to growth investors. Even during uncertain and volatile economic times, the steady demand for voice and data services, along with extensive subscription plans, assures a stable source of revenues for major telecom firms such as Verizon.

Telecommunications has become an increasingly important basic industry, which bodes well for its future prospects and continued growth. The continuing growth in high-speed mobile services and Internet connectivity between devices keeps driving innovation and competition within the sector. Much of the industry focus is on providing faster data services, especially in the area of high-resolution video. Essentially, the driving forces are toward quicker and clearer services, increased connectivity, and multi-application usage.

Emerging market economies continue to be a boon for the industry, with the growth rate of the cellphone industry in countries such as China and India pushing the abilities of hardware producers to keep up with the level of demand.

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