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.