As a value investment with predictable growth and dividends, the telecom sector has been an attractive place in the last few years.
During that time, it outperformed the rest of the Toronto Stock Exchange.
But with growth investments such as the resources sector rebounding and competition for wireless customers intensifying, telecom has lost some of its investment lustre in recent months.
Though wireless is only one asset in the telco asset mix, its growth and high margins have traditionally given it the most influence on share prices.
Shares in Canada’s big-three telcos experienced their best runs between 2003 and 2007, which some analysts and investors consider a “golden age” for investing in any company in the wireless market.
During that time, Telus Corp., Bell Canada and Rogers Communications had an exclusive grip on wireless, and there was plenty of the market left to grow.
But in 2007, the federal government started talking about opening the wireless market to new entrants.
A major dip in Rogers’ stock last fall followed disappointing third-quarter results – the first quarter that new entrants showed evidence that they were gaining market traction.
Investors are becoming uncertain about the ability of telco incumbents to keep new wireless entrants out of the market.
Over the longer term, with wireless penetration in Canada at only about 75%, some analysts believe telecom will remain a safe investment play, even if they expect the sector to underperform in the next few years.
A notable dip in Telus’ share price in the last month was likely the result of investors profit taking.
Other investors are pulling their cash out of value investments and putting it into higher-risk growth investments such as resources and other cyclical sectors.
Telecom’s investment potential is set to get even more complicated to assess.
For example, investors now have to consider the burgeoning battle between telcos and cable companies for digital TV market share.
As one analyst said: “Telecom is not a table-pounding, easy sector to buy into like it used to be.”