Telecom Industry Outlook Shows Possibilities and Challenges Alike At Every Turn

By Steve Anderson June 14, 2012

The industry outlook report for telecom stocks was released recently, and with it brought a deluge of information about trends in the industry, potential challenges, and opportunities for the entire sector. As may be expected with any industry, especially recently, telecom firms will face serious challenges to their very survival, but the industry also has plenty of opportunities waiting to be seized upon by savvy firms.

With wireless--and particularly mobile video--being a primary driver of the industry outlook report released by Zacks Investment Research, it became readily apparent that there were a variety of new areas on which firms could capitalize. The sector itself distinguished itself over various other sectors making up the economy, as expressed by a comparison to the S&P 500 as a whole. While the S&P 500 returned a comparatively sluggish 3.81 percent increase, shares of Verizon Communications were up 9.64 percent, AT&T was up 17.04 percent, and Sprint Nextel saw a staggering boost of 27.35 percent year to date. Net subscriber additions marked the first quarter of 2012, with major firms like Verizon adding 501,000 post-paid subscribers and even comparatively smaller firms like Leap Wireless adding 258,000 subscribers.

Since the telecommunications industry covers a wide array of technology-related businesses including cable television, satellite providers, fiber optics networks and more, it's easy to see why the telecom industry is regarded as one of the primary drivers of not only the United States' economy, but also the world's. That quality of being equally dynamic in both developed and developing economies alike also gives it a lot of resilience compared to other firms, and extremely high barriers to entry--the ability to afford the necessary infrastructure or the necessary step of government regulator approval--keep competition comparatively low in the sector, with, effectively, four major firms controlling the United States telecom market. This gives them a good position indeed as structural subsidies look to play a part in spurring sales for telecoms, and the potential for international diversification in providing a necessary service for business and personal use makes the market a very attractive one.

It's this attractiveness that's luring new and unexpected players; a surprising amount of spillover exists, and more can come along as chipset makers start developing their own mobile hardware. Consider the example of the Google-branded tablet, as well as Google's entry into the fiber network arena--and start considering building infrastructure on which to run it, as was the case of Apple potentially looking into starting its own mobile data network. With a potential business slowdown, weak credit, and a potential for increased competition from major firms with sufficient resources to enter the market facing the telecommunications market, the market's potential for change is enormous.

The market is already massive and looking to increase, as the FCC estimates that mobile data demand will climb between 25 and 50 fold in just the next five years. Spectrum crunches are increasingly an issue, and simply raising prices to users will only go so far. The market is packed with opportunities to bring the next big thing to users, and with it, impressive revenues and gains, even in a lagging economy for anyone who can provide the needed solutions. While the market will likely be volatile for some time to come, the potential rewards are every bit as impressive as the risks are large.

Edited by Jamie Epstein

Contributing TechZone360 Writer

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