The telecommunications sector is traditionally seen as a conservative investment option, given demand for communications services is largely impervious to economic cycles. But ASX telecommunications companies are constantly investing in new technologies and innovation.
What are ASX telecommunications shares?
Telecommunications stocks are often considered stable investments with predictable earnings and revenue streams.
However, the industry is also subject to rapid technological change, regulatory developments, and competition, which can affect the performance of ASX telecommunications shares.
Why invest in them?
Telecommunications companies usually have a history of paying consistent and reliable dividends, making them attractive to income-oriented investors.
An investment in this sector is also a defensive play, given telecommunications are an essential service that consumers will demand regardless of economic conditions. This can provide for more stable share prices.
It also makes the sector less vulnerable to economic cycles and market volatility. Because of this, the performance of telecommunications shares is not highly correlated to that of the market as a whole. This means an investment in telecommunications shares can offer investors valuable diversification benefits.
Demand for high-speed mobile data and internet services will continue to grow, providing a growth trajectory for the industry. This growth potential may provide investors with an opportunity for capital appreciation.
Additionally, the sector continually evolves as new technologies such as 5G and fibre optic networks emerge. Investment in these technologies may help telecommunications companies gain a competitive advantage, creating value for shareholders.
Top telecommunications shares on the ASX
There are more than a dozen companies providing telecommunications services in the Communication Services sector of the ASX. Three of the largest ASX telecommunications stocks are listed below, ranked by market capitalisation from high to low.
| Company | Description |
| Telstra Group Ltd (ASX: TLS) | One of the largest and most established telecommunications companies in Australia, Telstra offers a full range of communications services and competes in all Australian telecommunications markets |
| TPG Telecom Ltd (ASX: TPG) | The second largest telecommunications company listed on the ASX, providing broadband, mobile, home, and business phone and cloud services |
| Spark New Zealand Ltd (ASX: SPK) | New Zealand-based telecommunications provider that operates domestically and in Australia and the United States. Provides internet, landline, mobile, and web services to consumers and business customers |
Telstra
Telstra offers internet, mobile, landline, and streaming services. It can trace its origins to the federation of Australia when the Postmaster-General's Department controlled telecommunications services.
After the Australian telecommunications industry was deregulated in the early 1990s, Telstra was privatised, and listed on the ASX in 1997.
Telstra owns the copper wire network that connected most of Australia's homes before the National Broadband Network (NBN) was built. The NBN has taken over the lines in areas where it has been built, with Telstra able to use the lines on the same basis as any other business that resells phone and internet services. This means Telstra no longer controls the fixed-line telecommunications network that competitors use to service most Australian premises.
Telstra's financial performance has varied, impacted by competition, regulation, and technological changes. The company has a long history of paying solid dividend yields to its shareholders, and its dividend payments have generally grown over time. However, in recent years, Telstra has reduced its dividends to focus on investing in its business and reducing debt.
TPG Telecom
TPG Telecom emerged from the merger of TPG and Vodafone Hutchison in 2020. This created a large third vertically-integrated player in the Australian telecommunications market. TPG Telecom owns and operates national mobile and fixed networks and is behind brands including Vodafone, TPG, iiNet, AAPT, Internode, Lebara, and felix.
TPG Telecom capitalises on its opportunities as a full-service telecommunications company to drive higher usage, increase infrastructure sharing, and unlock value across its asset base. The company sold its entire mobile tower and rooftop infrastructure network to a Canadian pension fund in mid-2022, with the proceeds used to reduce debt, lowering financial leverage and borrowing costs.
TPG Telecom is in the midst of its national 5G rollout, with more than 2,000 sites complete. In addition to its core telecommunications services, the company has expanded into other areas, such as digital television and energy services.
TPG has a policy of paying out at least 50% of its adjusted net profit after tax (NPAT) as dividends.
Spark New Zealand
Spark is New Zealand's largest telecommunications and digital services company. It started life in 1987 when Telecom was spun off from the New Zealand Post Office and listed on the ASX in 1991. Now a provider of digital services including broadband, entertainment media, and cloud computing, Spark is in the process of transitioning from its traditional telecommunications heritage to a more diversified and higher growth digital services provider.
In 2022 Spark agreed to sell a 70% stake in its tower business to a Canadian pension fund with net cash proceeds of about $900 million. The company used the proceeds to reduce debt, return money to shareholders through an on-market buyback, and invest in future growth opportunities such as digital infrastructure. The transaction was intended to maximise shareholder value and maintain financial strength and flexibility.
Pros of investing in telecommunications stocks
Steady demand: Telecommunications is an essential service, and demand for telecommunications services tends to be steady regardless of economic conditions. This can make telecommunications companies relatively stable and defensive investments.
Strong cash flows: Telecommunications companies tend to generate strong and stable cash flows, which can allow them to pay dividends, buy back shares, and invest in growth opportunities.
Diversification: The telecommunications sector is not highly correlated to the broader market. This means investing in the sector can provide shareholders with important diversification benefits.
And the cons
Competition: The telecommunications industry is highly competitive, with many companies vying for market share. This can lead to lower profit margins and increased share price volatility for investors.
Technological change: The industry is constantly evolving, with new technologies and services emerging. This can create risks for companies operating in the sector as their investments can quickly become outdated.
Regulation: Telecommunications companies are subject to government regulation, which can affect their profitability and growth potential.
Are ASX telecommunications shares a good investment?
Whether ASX telecommunications shares are a good investment for you will depend on your financial situation, time horizon, and investment goals, as well as the circumstances of the specific company being considered for investment.
Investing in the telecommunications industry can be appealing due to the dividend income and diversification benefits these investments can generate.
Telecommunications services are essential to modern life, which means demand is relatively steady regardless of economic conditions. Nonetheless, the telecommunications industry is evolving as new technologies and services emerge. This can create opportunities but also challenges for investors in the sector.
