A:

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 somewhat higher profit margins than the telecommunications service area (21% versus 18.5%, 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 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 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.

RELATED FAQS
  1. What is the telecommunications sector?

    The telecommunications sector consists of companies that transmit data in words, voice, audio or video across the globe. Read Answer >>
  2. What are the best metrics to evaluate a telecommunication company?

    Use fundamental analysis and three specific metrics to evaluate telecommunications companies to find the best one for your ... Read Answer >>
  3. Do high interest rates hurt the performance of telecommunication stocks? If so, why?

    Learn why many investors believe that telecommunications stocks tend to be very interest rate sensitive and how rising rates ... Read Answer >>
  4. What is considered a healthy operating profit margin?

    An operating profit margin is a profitability ratio that investors use when evaluating a company. Comparing a company's margins ... Read Answer >>
  5. Profit margin versus operating margin: What's the difference?

    There are some distinctions between profit margin and operating margin. Both measure efficiency of a firm, but one takes ... Read Answer >>
  6. How do gross margin and profit margin differ?

    Gross margin and profit margin are profitability ratios used in evaluating a company's financial health, but they have distinct ... Read Answer >>
Related Articles
  1. 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.
  2. 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.
  3. 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.
  4. Investing

    The Share Buyback Report: The Telecom Sector (T, VZ)

    Examine telecommunications sector share repurchase data to identify which companies and catalysts drove buyback trends between 2006 and 2015.
  5. Investing

    Verizon Stock: Analyzing 5 Key Suppliers (VZ)

    Learn about Verizon Communications, and discover the companies that are its key suppliers. Obtain a brief summary and analysis of each company.
  6. Investing

    The Top 5 Large Cap Telecommunication Stocks for 2016

    Discover the top five large-cap telecommunications companies poised to grow in 2016. Learn how each company plans to grow over the next year.
  7. Investing

    The Difference Between Gross and Net Profit Margin

    To calculate gross profit margin, subtract the cost of goods sold from a company’s revenue; then divide by revenue.
  8. Investing

    Dialing Up Telecom ETFs

    Telecom ETFs tempt with yield, but investors need to consider other issues in the sector.
  9. Managing Wealth

    What's a Good Profit Margin for a Mature Business?

    How to determine if the amount you clear dovetails with the competition.
  10. Investing

    Behind Verizon's 66.7% Rise in 10 years (VZ, T)

    Analyze Verizon's stock performance over the past 10 years. Learn how VZ's defensive characteristics and periods of strong performance have driven returns.
RELATED TERMS
  1. Net Profit Margin

    Net profit margin, or net margin, is equal to net income or profits ...
  2. Sector

    A sector is an area of the economy in which businesses share ...
  3. Capital Intensive

    Capital intensive refers to industries that require large amounts ...
  4. Telephone Bond

    Telephone bonds are debt obligations issued by telephone or telecommunication ...
  5. Gross Profit Margin

    A gross profit margin is a financial metric used to assess financial ...
  6. Profit

    Profit is the financial benefit realized when the amount of revenue ...
Trading Center