WHAT IS Telecom ETF
A telecom ETF is an exchange-traded fund (ETF) that invests in companies with a significant stake in telephone and internet products, services and technologies.
Telecom ETFs are also known as communications industry ETFs.
BREAKING DOWN Telecom ETF
Telecom ETFs are a varied group of funds, invested in overlapping but not unified groups of stocks and other securities all in the telecom industry. In one respect, telecom ETFs do not offer investors much in the way of diversification and risk mitigation because they are concentrated on a single industry; on the other hand, they do offer diversification and risk mitigation because they allow investors to invest in a basket of telecommunications companies, and the telecom industry is constantly evolving. As a result, telecom ETFs can be less risky than buying a single company's stock. However, they are significantly more risky than investing in a general index fund or funds that are intentionally diversified into several industries, as the telecom industry is much riskier as a whole and prioritizes new technology and growth over stability.
There are many different varieties of telecom ETFs, each of which focuses on a different aspect of the telecommunications industry. International telecom ETFs invest in top telecommunications companies from countries around the world. Telecom services ETFs invest in companies that provide phone, wireless, internet and other connectivity services. Other telecom ETFs do not focus on a single aspect of the telecommunications sector but track the sector as a whole.
Telecom Industry Changes
The telecommunications industry has undergone significant changes since the breakup of "Ma Bell,” or the Bell System operated by AT&T, in 1982. At that time, the Bell System was the only provider of telephone service across the country, and telephone equipment was manufactured by its subsidiary Western Electric. This was a monopoly, so in 1982 the Bell System was ordered to break up into regional Bell telephone companies, dubbed the Baby Bells, that offered local telephone service, while AT&T continued to provide long distance service and Western Electric continued to manufacture equipment.
This led to a period of stability in the telecom industry, as the Baby Bells did not compete directly with each other, and as use of telephone lines and services were consistently increasing with the rise of fax machines for business and the first bulletin board forays into the internet.
By the mid-1990s, however, the telecom industry was exploding with new technologies available to consumers and levels of competition that had not existed before. The internet was available for consumers through telephone lines via modems, companies were hardwiring dedicated internet lines for businesses, mobile phones were becoming common, wi-fi was in its infancy, and cable television was experimenting with new delivery models. All these explosions in technology led to a varied but highly volatile telecom industry for investors, which led to an explosion in telecom industry ETFs to match all interests and risk preferences.