Investing in telecommunication services stocks

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

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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)

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 Standard brokerage fee Inactivity fee Markets International
eToro (global stocks)
US$0
US$10 per month if there’s been no login for 12 months
Global shares, US shares, ETFs
Yes
Zero brokerage share trading on US, Hong Kong and European stocks with trades as low as $50.
Note: This broker offers CFDs which are volatile investment products and most clients lose money trading CFDs with this provider.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
IG Share Trading
$8
$50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares
Yes
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
Superhero share trading
$5
No
ASX shares, US shares
Yes
Australia’s lowest-cost broker for ASX shares and ETFs.
Pay zero brokerage on US stocks and all ETFs and just $5 (flat fee) to trade Australian shares from your mobile or desktop.
ThinkMarkets Share Trading
$8
No
ASX shares
No
Limited-time offer: Get 10 free ASX trades ($0 brokerage) when you open a share trading account with ThinkMarkets before 31 December 2021(T&Cs apply). $8 flat fee brokerage for CHESS Sponsored ASX stocks (HIN ownership), plus free live stock price data on an easy to use mobile app.
Bell Direct Share Trading
Finder AwardExclusive
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
Finder Exclusive: Get 5 free stock trades and unlimited ETF trades until 31 Dec 2021, when you join Bell Direct. T&Cs apply.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
SelfWealth (Basic account)
$9.5
No
ASX shares, US shares
Yes
Trade ASX and US shares for a flat fee of $9.50, regardless of the trade size.
New customers receive free access to Community Insights with SelfWealth Premium for the first 90 days. Follow other investors and benchmark your portfolio performance.
Saxo Capital Markets (Classic account)
$5
No
ASX shares, Global shares, Forex, CFDs, Margin trading, Options trading, ETFs
Yes
Access 19,000+ stocks on 40+ exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
CMC Markets Invest
$11
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges.
HSBC Online Share Trading
$19.95
No
ASX shares, mFunds, ETFs, Bonds
No
Limited time offer: Get up to $100 in brokerage rebates on your first 5 trades when you sign up to a HSBC Online Share Trading account (T&Cs apply). Make trades online with brokerage fees starting from just $19.95 with an HSBC Online Share Trading account. Plus gain access to complimentary expert research, trading ideas and tools.
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Compare up to 4 providers

Important: Share trading can be financially risky and the value of your investment can go down as well as up. Standard brokerage is the cost to purchase $1,000 or less of equities without any qualifications or special eligibility. 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.

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