Should you buy stocks of telecom companies now?

Tuesday, March 1, 2011

Should you buy stocks of telecom companies now?

Telecom, especially mobile phone companies, as a sector is going through a rough patch for some time now. Primary reason being spectrum allocation scam that dates back to years (2G spectrum). Most of the telecom stocks have corrected significantly. Should you buy stocks of telecom companies in such conditions?

I just read opinion of Brics securities on this. If we go by their opinion, we should not be buying stocks of telecom companies for long term at all. The dream run in telecom businesses has already happened. In near future, it is going to probably stay in a trading range for a long time. Reliance Communications has got its own problems to deal with. Bharti telecom is near to stagnating revenues.

Most importantly, average revenue per users (ARPUs) is going to stagnate in telecom sector. At some point of time even the subscriber base is going to stagnate. No growth at all in these bread and butter areas!

In my opinion, with so many new telecom operators fighting for sectoral pie, competition is fierce and companies do not have pricing power. Have you seen those 1/2 paisa per second ads from MTS? And the recent 0 paisa per second from Videocon! What? You haven't heard of 0 paisa per second from Videocon? visit this http://www.zeroishere.com. Next, I guess, new telecom companies would pay subscriber to use mobile phones!

Anyways, what all I want you to pay attention is the fierce competition between these players. Companies who does not have pricing power can not sustain their growth.

Read more: Telecom stocks - Any takers?

All Telecom stocks may be good for trading occasionally but for long term gains, new growth drivers seems lacking. With 2G and 3G spectrum scams haunting them, you shouldn't be buying stocks of telecom companies at this point if you are looking for long term gains.