Guide to the Telecom Sector on the Stock Market
The stock market community is generally suspicious of rash statements, but Telecommunication majors have the dubious distinction of getting the better of the most conservative financial circles with some glib talk! The number of subscribers is a much touted statistic, but reflection will show that indeterminate numbers of these do not yield any critical mass of recurring revenue. There can be no second thought on the utility of cellular technology, but networks are known to fail in emergencies when they are needed most! Life will never be the same again without telephones that follow us everywhere, and multi-media prospects over the Internet confirm that they are here to stay. How long they can make worthwhile returns for stock market supporters is another matter! Telecommunications constitute an essential service, with a bright technological future, but how do they make money?
Government permissions and fiscal structures have played major roles in emerging markets, and the stock market cannot fail to take note of the resulting instability of revenues beyond contract periods. Influential business magnates have won rights to offer low competition services in distributed territories. One is never sure when intrusive governments may renege on license conditions. The large fixed cost component in this business, which goes towards development, acquisition, and maintenance of physical networks, drives executives in telecom companies towards nearly suicidal pricing! There are markets in which one can get an attractive handset, with a ‘lifelong’ subscription for almost nothing!
Pricing policies of telecom firms need to be seen in the light of technology upgrades in which they are likely to have to invest to stay in business in future. The business has already moved in the direction of text and video transmission, apart from the original audio intent. Existing capacities cannot meet even mild surges in demand, so satellite and terrestrial hardware will need both replacement and expansion. Telecommunication companies are quick to distribute dividends from short-term profits, but have they provided for essential investments to stay in business?
The business of making hand sets has better value delivery and profit potential than that of sending the calls that make these gizmos useful! Mobile telephones keep getting slimmer and smarter, and like wrist watches, we are suckers for new models!