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Investing in telecommunication services stocks

The benefits and risks of investing in telephone, computer and Internet providers.

Telecom services are in demand and rapidly growing, but the sector is prone to volatility. Here’s what Australian investors should know before pouring money into the telecommunication sector.

What are telecommunication services stocks?

Telecommunication services stocks belong to the telecommunications sector of the stock market. In total, there are 11 stock sectors as defined by the Global Industry Classification Standard. Each sector contains a distinct slice of the market.

The telecommunication sector is made up of companies that facilitate global communication — think telephones, mobile devices and the Internet. While the industry got its start in the 1830s with the invention of the telegraph, it’s since grown to encompass telephones, radio, computers and more.

What subcategories does it include?

The telecom sector can be broken down into three primary sub-sectors:

  • Telecom equipment. Companies that produce the hardware used for telecommunications, including computers, telephones, radios, transmission lines and transceiver stations belong to this sub-sector.
  • Telecom services. Major players in the telecom services sub-sector include telephone service providers and cable companies.
  • Wireless communication. Mobile network operators, Internet service providers and cloud-based services make up a majority of the wireless communication sub-sector.

How to invest in the telecommunication services sector

There are two ways to invest in telecom stocks in Australia, each with its own set of benefits and drawbacks. Individual stocks within the sector offer the opportunity for targeted investing for those who want to support individual companies. ETFs track the entire sector and bring diversification to a limited portfolio.

Stocks tend to be more profitable but are also more volatile. ETFs, on the other hand, offer stability but are accompanied by fees that typically range from 0.03% to 2.5%.

Whether you want to purchase stocks or ETFs, you’ll first need a brokerage account in Australia. Here’s a quick look at the investment process:

  1. Select a platform. With plenty of online brokerages to choose from in Australia, compare platforms to find the broker best suited to your investment goals.
  2. Open an account. Applications for web-based brokerages can be completed entirely online.
  3. Fund your account. Transfer funds from an external account to begin trading.
  4. Pick your securities. Using your platform’s research tools, filter stocks and ETFs by sector to narrow down your options.
  5. Place an order. Once you’ve found a security you’d like to purchase, submit your order.
  6. Watch your investments. Monitor your investments by logging into your brokerage account.

What stocks are in the telecommunication services sector?

What ETFs track the telecommunication services sector?

Major funds that track the telecommunication services sector include:

  • Communication Services Select Sector SPDR ETF (XLC)
  • Fidelity MSCI Communication Services Index ETF (FCOM)
  • First Trust Indxx NextG ETF (NXTG)
  • iShares Global Telecom ETF (IXP)
  • iShares U.S. Telecommunications ETF (IYZ)
  • SPDR S&P Telecom ETF (XTL)
  • Vanguard Communication Services ETF (VOX)

Finder survey: Which industries do Australians hold stocks in?

Response
Telecommunication27.54%
Source: Finder survey by Pure Profile of 1145 Australians, December 2023

How is the telecommunications sector performing?

The graph below tracks the performance of the Communication Services Select Sector SPDR ETF (XLC). Tracking the performance of ETFs is one way to monitor the overall trend of stock sectors.

Why invest in the telecommunication services sector?

The global economy relies on telecom services now more than ever before. This pushes telecom services into staple territory — a service that can remain in high demand, regardless of global, political or socioeconomic change.

As the telecom industry continues to rapidly evolve, Australian investors have the opportunity to get in on the ground floor with low-cap companies on an upward trajectory. Growth is an inherent part of this stock sector, and investors that select their securities wisely have the opportunity to turn a sizable profit.

What unique risks does the telecommunication services sector face?

Rapid technological change puts pressure on seasoned providers while promoting ferocious competition among startups. This sector is prone to volatility due to the fast-paced nature of the industry. There’s plenty of room for profit, but during a bear market, losses can be sizable.

How to evaluate telecommunication companies

Knowing how to assess telecommunications companies can help you understand which companies are succeeding and choose stocks more wisely. Metrics to evaluate include:

  • Size. Companies in this sector need to be large enough to weather the costs of service and network expansion. Low-cap stocks may be less expensive, but smaller companies are more likely to fold in an economic downturn.
  • Price-to-sales ratio. A company’s price-to-sales ratio compares its stock price to its revenues and can help Australian investors gauge how much other investors are willing to pay per dollar of sales for a particular stock.
  • Average revenue per user. Assess a company’s growth performance with its annual revenue per user: A calculation of a company’s total revenue divided by its number of active users. For telecom companies, this can help you assess mobile service providers and cable companies by tracking their revenue generated per user.
  • Churn rate. The churn rate is the rate at which customers terminate their service or abandon their provider for a competitor. A high churn rate means the company is likely experiencing difficulty retaining its user base.

Compare stock trading platforms

Compare brokerage accounts in Australia to find the right fit. Once you open an account, you can begin investing in stocks and ETFs.

Name Product Price per trade Inactivity fee Asset class International
eToro
Finder AwardExclusive
eToro
$0
US$10 per month if there’s been no log-in for 12 months
ASX shares, Global shares, US shares, ETFs
Yes
Finder exclusive: Get 12 months of investment tracking app Delta PRO for free when you fund your eToro account (T&Cs apply).
CFD service. Capital at risk.
Join the world's biggest social trading network when you trade stocks, commodities and currencies from the one account.
CMC Invest
Finder Award
CMC Invest
$0
$0
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
$0 brokerage on US, UK, Canadian and Japanese markets (FX spreads apply).
Trade over 45,000 shares and ETFs from Australia and 15 major global markets. Plus, buy Aussie shares or ETFs for $0 brokerage up to $1,000 (First buy order of each security, each day - excludes margin loan settled trades).
Moomoo Share Trading
US$0.99
$0
ASX shares, Global shares, US shares, ETFs
Yes
Get 10 free shares + earn 6.8% p.a. on idle cash upon deposit. T&Cs apply.
Trade shares on the ASX, the US markets and buy ETFs with Moomoo. Plus join a community over 20 million investors.
Tiger Brokers
US$2
$0
ASX shares, Global shares, US shares, ETFs
Yes
Finder exclusive: 10 no-brokerage US or ASX market trades in the first 180 days + 7% p.a. on uninvested cash with first deposit of any amount, plus US$30 TSLA + US$30 NVDA shares with deposits up to AU$2000. T&Cs apply.
Trade Australian, US and Asian stocks with no minimum deposit on Tiger Broker’s feature-packed platform.
Webull
Exclusive
Webull
US$0.25
$0
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
Finder exclusive: Get an additional 30 days of $0 brokerage. Get advanced research and trading tools with $0 brokerage and free lvl 2 NASDAQ stock data for 30 days. T&Cs apply.
Trade ASX and US stocks and US options, plus gain access to inbuilt news platforms and educational resources. You can also start trading for less with fractional shares.
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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Bottom line

The telecom sector offers investors the opportunity to back companies that facilitate global communications. While rapid growth is an attractive perk, Australian investors should be wary of losses during a down market. Review your brokerage account options across trading platforms for the account best suited to your investment needs.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
Shannon Terrell's headshot
Writer

Shannon Terrell is a writer for Finder who studied communications and English literature at the University of Toronto. On any given day, you can find her researching everything from equine financing and business loans to student debt refinancing and how to start a trust. She loves hot coffee, the smell of fresh books and discovering new ways to save her pennies. See full bio

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