Telecom: Strong Investment 147 Yrs Post Telephone's Invention
It’s hard to imagine a world without being able to simply pick up the phone and call someone across the globe. Before the invention of the telephone, people had to rely on a third party to transmit messages via the postal service or telegraph lines. Now considered one of the top 10 inventions of all time, the telephone has transformed the way we communicate.
March 7th, known as Alexander Graham Bell Day, commemorates the anniversary of the day the telephone patent was approved by the US patent office. A lot has changed in the nearly 150 years since the invention of the telephone. However, the telecommunications industry remains a strong option for investors looking for relatively stable and consistent gains.
Brief History of the Telecommunications Industry
Alexander Graham Bell was a Scottish-born inventor who is credited with the invention of the first working telephone in 1876. This invention caught on quickly. By the year 1900, there were over 600,000 telephones in use around the world. Ten years after that, the number jumped to 5.8 million.
As telephone usage exploded in the early 20th century, new capabilities and features were added including dials, push buttons, and automatic attendant systems. By 1951, the first direct long-distance telephone call connected the mayors of Englewood, New Jersey and Alameda, California. These innovations set the stage for other services to follow including fax machines, cable television, and the internet.
The 1970s brought new innovation to the telephone with Dr. Martin Cooper of Motorola introducing the first cellular telephone. While these mobile devices were extremely expensive initially, competition from other large companies like Nokia and Samsung helped reduce the price.
IBM created the first smartphone in 1992, but it wasn’t until Apple released the first iPhone in 2007 that allowed for mass adoption globally. Today, nearly 85% of the global population owns a smartphone.
Overview of the Telecommunications Industry
The global telecommunications industry is valued at over $1.8 trillion and growing. Companies like Berkshire-Hathaway have predicted that the industry will continue to expand at a rate of 6.2% annually and reach $2.47 trillion by the year 2028. Despite mass adoption in most places around the world, there are still areas that require additional development making telecommunications one of the fastest growing sectors over the last decade.
One unique aspect of the telecommunications industry is its relative stability due to high barriers of entry and a small number of major corporations. Control over telecommunications infrastructure creates an oligopoly environment where there are a handful of sellers who offer the same or similar services. The largest wireless carriers in the world include T-Mobile, China Mobile, Verizon, Comcast, and AT&T. These five companies alone make up 35% of the total global telecommunications sector. Competition decreases further at the national level. For example, in the United States, three wireless carriers (Verizon, AT&T, and T-Mobile) control 99% of the total market share.
Most people think of telephones when they think of the telecommunications industry. However, investors have the ability to invest in one of the three key sub sectors – telecommunications equipment (phones and other equipment), telecommunications services (fixed-network services like landlines, internet, and cable), and wireless communications.
Evaluating Investment Opportunities in the Telecom Sector
Investment professionals who are looking to hedge their existing portfolios or their clients' portfolios with a sector that has a strong history and positive future should look no further than telecommunications.
There are hundreds of companies to choose from so performing a traditional technical analysis may be challenging. Many investment experts are turning to technology like AI equity analysis to streamline their search and ability to find the best investment opportunities and compare them to their peers.