The telecommunications sector and exchange traded funds (ETFs) have long been known as a defensive play, but is this thinking overrated?
Once thought to be immune from the economic disaster, the steady cash flows and steady demand are not as resilient as once believed. Molly Neal for The Wall Street Journal reports that many European operators are reporting falling profits, with much more of the same anticipated in the future.
Premium mobile services are no longer affordable, and have since become a luxury in markets such as Spain, France, the United Kingdom and Germany. Blame the recession for putting a damper on the growth of this sector over there.
Meanwhile, telecom companies in Malaysia and the Philippines have shown growth. TMC net.com press release also reports that coming into 2008 just over 90% of the 27 million people in Malaysia had a mobile telephone service. Evidently Malaysia and the Philippines has developed one of the more advanced telecom environments in the developing world.
Is their growth enough to restore the sector at large?
In the United States, telecommunications companies could benefit from the economic stimulus package. And despite a global recession, AT&T (T) has announced that it would spend $1 billion in expanding its global network, which would add greater capacity for businesses in the United States and overseas.
- WisdomTree International Communications (DGG): down 16.9% year-to-date
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.