The
surprising victory of Republican Donald Trump in the presidential
election is starting to impact telecom policy parameters. Trump will
take charge of White House on Jan 20, 2017 and will select a new
Chairperson of the U.S. telecom regulatory body, the Federal
Communications Commission (FCC). The Trump regime is likely to bring
some relief as well as concerns for the telecom industry.
Nevertheless,
the U.S. telecommunications industry is likely to witness reasonable
growth through 2017. This industry has lately emerged as an intensely
contested space where success depends largely on technical superiority,
the quality of services and scalability. Cut-throat pricing competition
may put pressure on margins. Uninterrupted advancement in telecom
technologies has helped telecom operators and equipment manufacturers
adopt newer business models in order to boost revenues.
Wireless
network strength holds the key to overall growth of this space. As
wireless networks run on radio frequency, spectrums (airwaves) have
logically become the most sought-after asset in the industry. Spectrum
auctions conducted by the FCC from time to time will significantly boost
network capacity.
Key Attributes for 2017
(1)
The telecommunications industry is essentially characterized by high
barriers to entry. The deployment of network infrastructure requires
significant capital expenditure, which very few entities can afford.
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. Such barriers protect the profits of incumbents.
(2)
A major characteristic of the telecommunications industry is that it is
immune to international geo-political disturbances, even when these
lead to economic fluctuations. This is because the need to remain
connected springs from our earliest instincts to communicate with fellow
human beings. Volatility in the global economy due to political and
economic disturbance in the Eurozone, Asia-Pacific or the Middle-East
has had little impact on the sector.
(3)
Wireless network strength is the key to future growth of the overall
telecom industry. As wireless networks run on radio frequency, spectrums
(airwaves) are naturally the most sought after assets in the industry.
Spectrum auctions conducted by the FCC from time to time will
significantly boost network capacity.
(4)
Telecom companies offer one of the highest dividend yields in the U.S.
economy. Unlike other industries, U.S. telecom operators generate their
revenues predominantly in the country. This makes these stocks less
susceptible to volatility in the foreign exchange rate as well as
macro-economic fluctuations plaguing the rest of the world. We believe
the strong dividend yield momentum will continue as the U.S. economy
slowly returns to stability.
(5)
Mergers and acquisitions (M&A) are not uncommon in the U.S. telecom
industry. Telecom and pay-TV operators often join forces to provide
better and attractive bundled products to their customers. In order to
stay abreast of competition, existing players need to be constantly on
their toes to introduce innovative products or merge with other
companies. In the near future, the U.S. telecom industry is slated to
witness further mergers and acquisitions along with product
diversifications.
Major Upcoming Developments
Telecommunications
is one of the few industries to have undergone rapid technological
improvement even during the Great Recession. An era of digitization and
technology has essentially been built on the basic requirement to remain
connected. It is in this context that telecommunications comes to the
fore as a necessary utility. Growing demand for technologically superior
products is the silver lining in the telecom industry in an otherwise
tough environment.
5G Wireless Technology
Several
industry researchers hold that fifth-generation (5G) network will
provide a download speed of 1 Gbps (gigabit per second), which is 200
times the throughput of the currently available standard 4G LTE network.
Latency period of data delivery will be in single milliseconds.
Further, 5G technology is designed to be more power-efficient than any
other standard wireless network available at the moment. Naturally,
5G-enabled mobile devices are likely to last much longer than their 3G
or 4G counterparts.
