The average net profit margin for companies in the telecommunications sector, as of September 2018, is approximately 17%, according to CSIMarket.com figures. 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 higher net profit margins than the telecommunications service area (12.5% versus 4.3%, based on New York University's Stern School of Business calculations), 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. It is to some extent dominated by major, multinational firms such as Verizon, but it's also 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 has 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 the 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 services.
The sector is very capital-intensive, providing larger firms with 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.