Search

Stocks in the telecommunications services industry have become more popular with the possibility of lower corporate earnings and slower US economic growth in 1999. The potential for revenue and earnings growth, along with stability, are among the reasons that many are finding these stocks attractive. Telephone company stocks are expected to outperform the market in 1999, but are less attractive for the next three to five years.

The telecommunications industry is changing due to technological innovation and increased demand, and is no longer segmented into discrete components. The regional Bell operating companies, for example, are increasing their cellular and wireless communications business. Congress is also considering legislation that will impact the industry through the 1990's. Investors must consider long-term investment factors and tolerate risk.

Deregulation and technological innovation have changed the marketplace for telecommunications, not only for Regional Bell Holding Companies but also for access providers and long-distance services. State and federal regulation are making both local and long-distance service more competitive. Telecommunications may no longer be an industry for those seeking dividends, but it does have areas of investment interest.

The telecommunications industry is in a state of flux, and companies operating in that industry face competition from non-traditional sources. They have therefore begun programs to downsize their operations to be competitive. Federal and state regulation of the new marketplace will greatly influence the success or failure of companies as they enter new markets or offer new services. Particularly risky are the prospects of personal communications services (PCS) carriers. These companies are not expected to generate healthy profits for several years, even if they are able to wrest customers from by-then-established cellular services.

There is a great amount of competition in the telecommunications services industry in 1994 as many companies, including cable television and long distance telephone companies, attempt to offer local telephone service. The telecommunications services industry is expected to be operated differently by the year 2000. Telecommunications services companies that do not plan to expand their services too much but that do plan to upgrade their equipment are good investment prospects.

The telecommunications services industry is becoming more competitive as technology increasingly breaks down geographic and service monopolies. Companies that hope to succeed in this competitive atmosphere will be ones that can deliver a combination of telecommunications services. Partnerships between and takeovers of telecommunications services companies will become more frequent because such strategies help provide complementary services and economies of scale.

Fundamentals for the telecommunications services industry remain attractive despite increasing competition. Decreasing access costs to local exchange companies should increase profits for long-distance carriers. Interactive multimedia services offer growth potential to local telephone exchange companies which will require the replacement of copper wire with fiber optic cable for transmission networks. The cost of installing fiber optic cable may be overstated by some industry estimates.

The possibility for increased competition among telecommunications service providers will create volatility in the market in 1994. New markets will expand and become open to new providers. New technologies should also become more important, as services like cellular and wireless service become more common. Interactive and multi-media services will also make for added uncertainty and opportunity. Investors should pay close attention to new developments from government, and evaluate individual companies based on their potential.