Invest in telecommunications stocks

• 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?

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.

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.

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Name	Product AUFST	Price per trade	Inactivity fee	Asset class	International
eToro Exclusive		US$2	US$10 per month if there’s been no log-in for 12 months	ASX shares, Global shares, US shares, ETFs	Yes	Exclusive: Get 12 months of investment tracking app Delta PRO for free when you fund your eToro account. T&Cs apply. Trade stocks, commodities and currencies from the one account and get access to social trading.	Go to siteMore Info Compare	loading Fetching your data...
CMC Invest Finder AwardExclusive		$0	$0	ASX shares, Global shares, Options trading, US shares, ETFs	Yes	Finder exclusive: Get $100 trading credit when you transfer $10k+ of either Australian or international stocks to CMC Invest. Only available for the first 50 new clients to participate. Use promo code “100CMC”. T&Cs 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).	Go to siteMore Info Compare	loading Fetching your data...
Tiger Brokers Finder AwardExclusive		US$1.99	$0	ASX shares, Global shares, Options trading, US shares, ETFs	Yes	Finder exclusive: Get 4 brokerage-free trades and pay no FX fees on the first $2,000 you exchange each month with first deposit of any amount + plus get an $80 cash voucher when you deposit up to $2000. T&Cs apply. Trade US, Asian and CHESS-sponsored ASX stocks and US options.	Go to siteMore Info Compare	loading Fetching your data...
Moomoo Share Trading Exclusive		US$0.99	$0	ASX shares, Global shares, Options trading, US shares, ETFs	Yes	Finder exclusive: Unlock up to AUD$4,000 AND US$4,000 in $0 brokerage over 60 days. T&Cs apply. Trade US, Asian and CHESS-sponsored ASX stocks and get access to social trading.	Go to siteMore Info Compare	loading Fetching your data...
Superhero share trading Exclusive		$2	$0	ASX shares, US shares, ETFs	Yes	Sign up with code ‘finder24’ and get US$10 of Nvidia stock when you fund your account with $100 or more within 30 days. T&Cs apply. Enjoy US$2 brokerage (other fees may apply) on US stocks and buying ETFs as well as $2 fee to trade Australian shares up to $20,000.	Go to siteMore Info Compare	loading Fetching your data...

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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

• Which indexes follow the telecommunications sector?

  The S&P Telecom Select Industry Index tracks communications equipment providers, telecom services and wireless services.

• Do telecommunication services stocks pay dividends?

  Yes, many telecom stocks pay dividends.