Investors increasingly wary of telecommunications sector

The telecommunications sector has seen a decline over the past twelve months.  According to The New York Times, the telecommunications sector has declined 6.96% in stock market value in the past year.  What has been driving the decline? Four factors actually.

According to an analysis by Charles Schwab, the four factors driving the decline in telecommunications sector stocks include:

  • Declining consumer spending;
  • Falling profits;
  • Rising expenses; and
  • Heavy debt loads.

Are actions on the part of the Federal Communications Commission driving these factors?  Probably not.  Declining consumer spending is probably the result of consumers being increasingly conscious of their household budgets.  Increased offerings of prepaid smartphones is one indication of price consciousness.

As for falling profits, this more than likely is the sector’s response to increased competition as consumers identify more affordable communications options, especially in wireless as more consumers get rid of landline phones.  The irony is that the FCC still can’t come out and declare wireless services as effectively competitive even in light of the evidence provided by the analysts on the Street.

Rising expenses for deploying the infrastructure needed to meet increasing demand and the increased debt needed to finance capital expenditures again appear more driven by consumers than public policy.

Although the Charles Schwab analysis did not mention public policy or regulation as a driver of rising expenses, I would throw in the the costs of complying with the FCC’s net neutrality rules, especially where activists may be chomping at the bit to scrutinize every change in speed going across broadband networks.  The transparency rules require that broadband firms provide customers with information on how their networks are being managed.  While I suspect that most customers would not be able to understand much of the engineering, there will be a few complainants who will wax up the works but trying the FCC’s rules and broadband provider patience.


About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
This entry was posted in broadband, Internet and tagged , , , . Bookmark the permalink.

2 Responses to Investors increasingly wary of telecommunications sector

  1. kenski2013 says:

    I think consumers being cost conscious is a factor. In my own case, I have a “legacy” POTS line at home with a DSL riding on it, which started out at $24/month in 2009 and is now $42/month, even though it won’t run consistently at full speed (1536K download). Why I’m paying a whole lot more from something that isn’t any better baffles me. AT&T keeps calling wanting me to upgrade to Uverse, add cable TV, etc. I may do that eventually, but they want me to pay a monthly fee for a new cable modem (I thought that stuff went away after the divestiture in 1985, when we bought our home phones one time and quite paying a monthly fee for them), and the present DSL connection loses it’s Internet connection easily twice a day, right in the middle of whatever I’m doing, so I don’t really believe the ads that claim 99.9% reliability.

    And frankly, most of the time I don’t really need a faster Internet connection. It would be nice once in a while, but I’m not convinced the extra cost is worth it.

  2. kenski2013 says:

    As for cable TV, most of it isn’t much different than the crime drama/sitcom off the air TV, with a few exception, and oh, yes, they want a premium for sports channels.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s