It’s becoming a theme as the economy recovers: no bad news is the new good news. That’s especially true for telecommunication companies and exchange traded funds (ETFs).

Phone companies and network suppliers are finally feeling optimistic after second-quarter profits and earnings were shown to have improved over the first quarter. On the downside, Jeffry Bartash for The Wall Street Journal reports that the decline in business and unemployment has kept overall demand for telecom services low.

While telecom executives have yet to see an end to the recession, the industry believes that demand will resume by the end of this year, and should last into 2010. That’s because the industry has had to cut costs and become increasingly efficient, which means that as sales increase, margins may also rise.

Stable profits and avoidance of sharp sales declines have helped AT&T (T) and Verizon  Communications (VZ). Internet and phone service are considered “must haves” for most  people.

• iShares Dow Jones U.S. Telecommunications Sector (IYZ): up 13% year-to-date; AT&T 23.2%; Qwest 4.2%

• Merrill Lynch Telecom HOLDRs (TTH): down 4.7% year-to-date; AT&T 54.8%; Qwest 2.3%; Verizon 29.5%

For more stories about telecom, visit our telecom category.

Tags: IYZ, Sector ETFs, Telecommunications, TTH