Four Things to Like about the Telecommunications Industry

The telecommunications industry is one of the building blocks of a country. It has been amazing to witness the evolution within the industry from the provision of just landline services in the past, to now providing an integrated offering of media, internet, mobile and landline services.

Singapore is home to three main telecommunication companies, Singtel (SGX: Z74), Starhub (SGX: CC3) and M1 Limited (SGX: B2F). Although Starhub and M1 mainly compete in the local market, Singtel has a diverse global portfolio of telecommunication companies.

I’ll be delving deeper into the telecommunications industry next, but first, let me try to walk through some of the attractive points about the industry.

1. The growth of connectivity

Firstly, as the world grows wealthier and technology improves, people will demand a much higher level of connectivity. More and more people will need mobile access and a connection to the internet.

These factors will lead to an increase in the customer base for telecommunication companies.

Although Singapore can be considered as a saturated market, less developed countries like India (where Singtel has exposure to) still have a long way to go before it can be deemed as a saturated market where phone and internet access become ubiquitous.

2. Consistency of earnings

As telecommunication services can be deemed to provide recurring revenue streams for telecommunications operators, the earnings of telecommunication companies are extremely consistent compared to other industries.

This high level of consistency in their revenue and earnings attracts a certain group of investors who have cash flow needs and are more risk-adverse.

3. Huge barrier to entry

In most countries, telecommunication services are a highly regulated industry. This creates a high barrier for other competitors who might want to enter the market.

Since M1 Ltd and Starhub set up shop in Singapore in the 1990’s, there has not been another telecommunications company created here. This again ensures that the business of a telecommunication company is more predictable and less prone to adverse “surprises”.

4. International expansion

Last but not least, as the telecommunications industry in many countries consolidates its operators, it can create an opportunity for large telecommunications companies such as Singtel to expand its international footprint and grow its revenue.

Since 2000, Singtel has been able to enlarge its global exposure through acquisitions. Today, it has interests in markets beyond Singapore such as Thailand, India, Philippines, Australia, Bangladesh, Pakistan, and Sri Lanka.

Foolish Summary

For investors looking for consistency, the telecommunications industry is a great place to explore. However, nothing is without risk. I’ll be looking into some of the key risks that are associated with this highly regulated industry soon, so keep a look out!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.