3 Diversified Communication Stocks Set to Ride on Upbeat Demand

Supriyo Bose
6 min read

In This Article:

The Zacks Diversified Communication Services industry is poised to benefit from healthy demand trends led by increased fiber densification and accelerated 5G deployment across the globe. However, high capital expenditures for infrastructure upgrades, unpredictable raw material prices, geopolitical conflicts and elevated inventory levels amid a challenging macroeconomic environment and uncertain market conditions have dented the industry’s profitability.  

Nevertheless, Chunghwa Telecom Co., Ltd. CHT, Telefonica, S.A. TEF and Telenor ASA TELNY should benefit in the long run from the wide proliferation of IoT and transition to cloud networks and next-gen technologies driven by higher demand for scalable infrastructure for seamless connectivity.

Industry Description

The Zacks Diversified Communication Services industry comprises firms that provide a wide array of communication services, including wireless, wireline and Internet, to business enterprises and consumers. These companies offer mobile and wireline telephone services, high-speed Internet, direct-to-home satellite television and other value-added services. In addition to providing integrated information and communications technology services to businesses and governments, some of these companies operate as local exchange carriers or full-service providers of data center colocation and related managed services in state-of-the-art data center facilities. Some industry participants also provide IP networks, private lines, network management and hosting services, along with sales, installation and maintenance of major branded IT and telephony equipment.

What's Shaping the Future of the Diversified Communication Services Industry?

Customized Integrated Offering: The companies are increasingly focusing on providing support services to various small and mid-sized businesses (SMBs) with an integrated portfolio of voice, data and technology services to improve margins and business sustainability. The firms are tailoring their offerings to suit individual business needs and are facilitating SMBs to better adapt themselves to necessary technology advancements.

Short-Term Profitability Compromised: Video and other bandwidth-intensive applications have witnessed exponential growth owing to the vast proliferation of smartphones and increased deployment of the superfast 5G technology. This has forced the industry participants to invest considerably in LTE (Long-Term Evolution), broadband and fiber to provide additional capacity and ramp up the Internet and wireless networks. Although these infrastructure investments are likely to be beneficial in the long run, short-term profitability has been compromised. High raw material prices due to elevated inventory levels, economic sanctions against the Putin regime and intensifying war-mongering conditions in the Middle East have further affected the operation schedules of various firms. 

Low Latency, High Bandwidth Applications Gaining Precedence: The industry participants are rapidly transforming themselves from legacy copper-based telecommunications firms to technology powerhouses. At the same time, the firms continue to focus on leveraging wireline momentum, expanding media coverage, improving customer service and achieving a competitive cost structure to generate higher average revenue per user while attracting new customers. Also, these firms offer the flexibility to better manage data traffic by leveraging indigenous software-defined networks to enable low-latency, high-bandwidth applications for faster access to data processing. In addition, the industry participants are focusing on other revenue-generating opportunities in adjacent verticals such as consumer goods, precision agronomy, animal agriculture and the digital health services market to optimize production capabilities through access to data and key insights.

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