Investors who bought into the telecommunications explosion are smiling: The sector continues to provide volatile yet superior stock results.
Wireless technology continues to envelop the world, as consumers in mature and developing markets alike are becoming hooked on mobile data and entertainment at their fingertips.
Consolidation has further helped to drive up telecommunications stock prices.
The pending $27 billion buyout of Alltel Corp. by TPG Capital and Goldman Sachs Capital Partners is a prominent example. There's also the proposed $2.8 billion acquisition of rural wireless firm Dobson Communications Corp. by AT&T Inc. and the announced $557 million purchase of McLeodUSA by Paetec Holding.
Other companies, such as Sprint Nextel Corp., U.S. Cellular Corp. and Telus Corp., have enjoyed stock gains based on takeover potential.
The average telecommunications stock fund is up 33 percent during the past 12 months, according to Lipper Inc. That compares to the 17 percent gain of the average U.S. diversified equity fund.
"A lot of factors that include increased mobility and media convergence are fitting together to really drive telecom growth and innovation in the U.S. and globally," said Henry Ellenbogen, manager of the $2 billion T. Rowe Price Media and Telecommunications Fund, up 40 percent over the past 12 months, with a three-year annualized return of 32 percent.
The question is how long the good times will last before the industry may fall prey to an economic downturn. Inherent turbulence in this sector is the reason why it should never constitute more than a modest portion of an individual's portfolio.
Among those telecoms serving specific industry needs that have rewarded their shareholders:
America Movil SAB, Latin America's largest wireless operator, is up 42 percent this year after last year's 54 percent gain. Among its growing markets, it holds 70 percent of the wireless market in Mexico and has 8.6 million customers in the U.S.
American Tower Corp., a leading U.S. operator of broadcast communication sites in the United States, Mexico and Brazil, is up 17 percent after last year's 38 percent increase. It next plans expansion into India. Predictable revenue flows in from wireless carriers AT&T, Sprint Nextel, Verizon Communications Inc., T-Mobile USA Inc. and Alltel.
