A Beginner's Guide To Telecom ETFs

Telecommunications is a necessary utility. The need for telecommunications in both rural and urban areas as well as its role in the infrastructural development of an economy is of vital importance. The U.S. telecom industry has developed into an intensely contested space where success largely depends on technical superiority, quality of services, and scalability. Thus in order to stay abreast, existing players need to introduce innovative products, or merge with other companies despite a strict vigil by regulator the Federal Communications Commission (FCC). 

Momentum to Continue
The rising demand for technologically superior products has been the silver lining for the telecommunication industry in an otherwise tough environment. Uninterrupted advancement in telecom technologies has helped telecom operators to adopt newer business models in order to boost revenues. These include new pricing plans, a shift from unlimited data usage to tier-based data usage plan, and higher upgrade fees for smartphones and tablets. (Read: 3 ETF Winners and a Loser Post Meeting)
New Growth Areas

We expect wireless networks to provide the primary impetus to the telecom industry. In this regard the latest innovation of the Internet of Things (IoT) may become the most important component for the telecom industry’s future growth. The IoT is the network of physical objects embedded with electronics, software, sensors and connectivity to enable it to achieve greater value and service by exchanging data with other connected devices.

In the meantime, growth of software-defined networking (SDN), and network function virtualization (NFV) have encouraged telecom operators to invest heavily in the communications infrastructure market. SDN provides customers increased bandwidth utilization, higher reliability, and reduced capital spending. Meanwhile, NFV is designed to consolidate and deliver the networking components needed to support a fully virtualized infrastructure – including virtual servers, storage, and even other networks.  It utilizes standard IT virtualization technologies. (Read: 3 Active ETFs for a Choppy Market)

Also, Internet TV is gradually gaining market traction in the U.S. Of late, the legacy pay-TV industry in the country has been facing severe competition from online video streaming service providers. The low-cost over-the-top video streaming service has resulted in massive cord cutting that is currently threatening the pay-TV business model. Internet TV has emerged as a strong alternative to counter this competitive threat.

Net Neutrality: A Concern
The FCC net neutrality laws announced on Feb 26, 2015, mean that high-speed broadband (Internet) is now classified as a public utility under Title II of the 1934 Communications Act instead of section 706 of the 1996 Telecom Act. Importantly, the latest regulations will be applicable to both mobile and fixed broadband networks. The reclassification of Internet makes a radical change in the way the government treats high-speed broadband service and ISP. The FCC can now strongly regulate the ISPs.

The implementation of the new law will ban common ISP practices such as data traffic blocking, slowing any data traffic and paid prioritization.  (Read: A Guide to 10 Cheapest ETFs)

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