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 level of return on equity is average for a company in the telecommunications ...

    Learn about the average return on equity for the telecommunications sector and how government regulation may negatively affect ... 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 factors make the telecommunications sector good for value investing?

    Discover the factors that make the telecommunications sector good for value investing. Value investing is about identifying ... Read Answer >>
  6. 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 >>
Related Articles
  1. 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.
  2. 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.
  3. 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.
  4. Insights

    The World's Top 10 Telecommunications Companies

    Learn about the top ten telecommunications companies in the world and information about each company’s customer base, market share, and services.
  5. Investing

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  6. Managing Wealth

    What’s a Good Profit Margin for a New Business?

    Surprisingly, the younger your company is, the better its numbers may look.
  7. Investing

    ETF Flows: 2 Telecom ETFs Winning Assets (VOX, FCOM)

    Learn how the telecommunications sector has outperformed the market year to date and how investors are reaping the rewards through these 2 ETFs.
  8. 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.
  9. Investing

    What's a Sector?

    The term sector has several applications in economics and finance.
  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. Telecom ETF

    An exchange-traded fund that invests in companies with a significant ...
  2. Profit Margin

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

    Marginal profit is the profit earned by a firm or individual ...
  4. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company ...
  5. Sector

    1. An area of the economy in which businesses share the same ...
  6. Communication Industry ETF

    An exchange-traded fund that invests in telecommunications companies ...
Hot Definitions
  1. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  2. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  3. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  4. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
  5. Initial Coin Offering (ICO)

    An Initial Coin Offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture.
  6. The Bernie Madoff Story

    Bernie Madoff ran a multibillion-dollar Ponzi scheme that is considered the largest financial fraud of all time.
Trading Center