A:

The average net profit margin for companies in the telecommunications sector, as of 2014, is approximately 11%. Net margins typically average about half of a company's operating profit margins. Gross profit margins for the sector can run as high as 80 to 90%, but extremely high overhead expenses erode much of that initial profit balance. The telecommunications equipment area of the sector tends to generate somewhat higher profit margins than the telecommunications service area, likely due to the fact that the service part of the industry is such an intensely competitive marketplace.

The telecommunications sector is an extremely important market sector, to some extent dominated by major, multinational firms such as Verizon, but highly competitive, with new players sometimes entering the marketplace almost as rapidly as new technology.

A Major Change in the Landscape

The telecommunications industry has undergone a huge fundamental shift in the space of just a few years, as wireless communication has largely replaced fixed-line communications, and as various forms of Internet communication have rapidly outpaced traditional phone calls as a primary means of communication for individuals and businesses.

The emerging market economies of India and China have fostered a 21st century boom in demand for telecommunications equipment and telecommunications services across the board, including computer equipment and services, cellphones, and satellite and cable television service.

The sector is very capital-intensive, providing larger firms an easier path to expanding their market share by virtue of having the necessary capital for research and development spending, as well as for continuous capital reinvestment. Extensive underlying cable networks are constantly being expanded, both physically and in terms of capability. In addition to basic segments such as computers, mobile phones, Internet services, and satellite equipment and services, the sector encompasses an array of supporting industries such as Bluetooth equipment and coaxial cables and adapters.

The most successful firms, and those able to command the highest profit margins, are those companies that do the best job of managing capital, investing wisely, staying on the cutting edge of technology and most successfully establishing a brand identity.

RELATED FAQS
  1. What is the telecommunications sector?

    Learn about the telecommunications sector. This sector enables transmitting data whether it is words, voice, audio or video ... Read Answer >>
  2. What countries represent the largest portion of the global telecommunications sector?

    Learn what countries represent the largest portion of the global telecommunications sector. Mobile devices have created record ... Read Answer >>
  3. During what stage of the economic cycle should I invest in the telecommunications ...

    Learn what stage of the economic cycle is the best time to invest in the telecommunications sector and how inflation and ... Read Answer >>
  4. What is the long-term outlook of the telecommunications sector?

    Discover the long-term outlook of the telecommunications sector and the various factors contributing to its continued growth ... Read Answer >>
  5. What are the risks associated with investing in telecommunication stocks

    Read about some of the risks associated with investing in telecommunication stocks, including several that are specific to ... Read Answer >>
  6. Has increased data usage affected the telecommunications sector in developed countries?

    Read about which developed countries are leading the charge in the global telecommunications sector, and learn why Europe ... Read Answer >>
Related Articles
  1. Investing

    The Top 5 Telecommunication ETFs for 2016 (VOX, IYZ)

    Learn how you can gain exposure to American and global telecom stocks through five of the top telecommunications ETFs on the market.
  2. Financial Advisor

    Top 4 Communications Mutual Funds

    Discover some of the best mutual funds in the communications sector, and learn how investors can position investments within these funds.
  3. Investing

    The 5 Largest Telecom ETFs (VOX, IYZ)

    Explore the five largest telecommunications sector ETFs, as measured by assets under management. Learn the tracking indexes, trading volumes and yields of these ETFs.
  4. Investing

    IXP Vs. VOX: Comparing Telecom ETFs

    Explore exchange-traded funds administered and managed by Vanguard and iShares that invest in stocks of various telecommunication companies.
  5. Investing

    Telecom ETFs to Date 2016 Performance Review (FCOM, VOX)

    Pay attention to recent price performance when considering a telecom sector ETF. While some telecom ETFs provide strong returns, others are currently weak.
  6. Investing

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  7. Investing

    The Top 3 ETFs That Hold T-Mobile Stock (TMUS, IYZ)

    Obtain information about some of the exchange-traded funds in the telecom sector that have the highest percentage of portfolio allocation to T-Mobile stock.
  8. Investing

    What's a Sector?

    The term sector has several applications in economics and finance.
  9. Investing

    The Debt Report: The Telecom Sector

    Discover how America's telecommunications providers have been piling on debt since the Great Recession, and how part of the sector seems vulnerable.
  10. Financial Advisor

    The Top 5 Small Cap Telecommunication Stocks for 2016 (CBB, SHEN)

    Identify five small-cap telecommunication stocks that should be on your watchlist for 2016; analyze these stocks based on financials and recent performance.
RELATED TERMS
  1. Profit Margin

    Profit margin is part of a category of profitability ratios calculated ...
  2. Marginal Profit

    Marginal profit is the profit earned by a firm or individual ...
  3. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  4. Operating Margin

    A ratio used to measure a company's pricing strategy and operating ...
  5. Gross Margin

    A company's total sales revenue minus its cost of goods sold, ...
  6. Profitability Ratios

    A class of financial metrics that are used to assess a business's ...
Hot Definitions
  1. Current Assets

    A balance sheet account that represents the value of all assets that can reasonably expected to be converted into cash within ...
  2. Tax Liability

    The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable ...
  3. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  4. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  5. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  6. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
Trading Center