U.S. Telecom Industry: Momentum to Continue in 2017

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.