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The Telecom Ecosystem: 2013 vs. 2008

 

It would be difficult to find an industry more impacted by the digital age than telecom. From the long, slow death of the analog phone system to the current battle over net neutrality, the telecom industry has been through many a storm. Our question is, how—and how well—have the thousands of companies within telecom weathered them?

For answers, we turned to two sources: the U.S. Census Bureau’s economic survey data and Inc. magazine’s annual list of the nation’s 5,000 fastest-growing companies. Together, these sources paint a picture of a telecom industry that, in the past five years, has become smaller, more profitable and more efficient.

Key Findings

  • The Census Bureau’s data shows fewer telecom companies and fewer employees in the industry in 2013 than in 2008.
  • Over this five-year period, the industry’s gross receipts increased nearly 15 percent, while cumulative payroll decreased more than 2 percent.
  • Compared to other industries, telecom experienced above-average growth. This growth was driven largely by the mobile and wireless sector.

Fewer Telecom Companies, Fewer Employees

The telecom industry is no stranger to mergers, acquisitions and bankruptcies—to the contrary, these are some of its hallmarks. So the first step we took in our analysis was to tally the total number of companies operating in the industry at the start and finish of the most recent five-year period for which data are available: 2008 to 2013.

Companies in Telecom IndustryCompanies in Telecom Industry

The numbers from the U.S. Census Bureau’s survey show 6 percent fewer companies operating in the telecom sector in 2013 than in 2008. And during the same time period, the number of people employed in the industry dropped by more than twice that amount—14 percent.

Total Employed in Telecom IndustryTotal Employed in Telecom Industry

This discrepancy has many possible causes. Among them are:

  • There was not just a reduction in the number of companies operating in the industry, but also a slight downsizing trend among those that remained.
  • The companies that failed or merged each had a larger-than-average number of employees.
  • More companies chose to outsource jobs overseas.

Profits Grow, But Payroll Drops

In the same five-year period, the telecom industry’s yearly total receipts—defined by the Census Bureau as the “value of sales, shipments, receipts, revenue or business done”—increased nearly 15 percent: from just over $491 trillion (in 2008) to just over $563 trillion (in 2013).

Telecom Industry Total ReceiptsTelecom Industry Total Receipts

But while the industry as a whole brought in more money, less of that money, in total, was paid to its workforce. Annual cumulative payroll for the telecom industry shrank more than 2 percent by 2013—down to $73.8 trillion, from $75.4 trillion in 2008.

Telecom Industry Annual PayrollTelecom Industry Annual Payroll

Notice the discrepancy? The annual income of the industry grew 15 percent, while the amount spent on payroll each year shrank more than 2 percent. This can be explained partly by increased efficiency: the industry became more profitable with fewer employees. This is a trend witnessed in nearly all other industries in the U.S.

One of the factors driving increased efficiency in telecom is convergence, defined as “the efficient coexistence of telephone, video and data communication within a single network.” Eliminating the prior need to develop and maintain independent networks is allowing the telecommunications industry to operate with lower overhead and higher margins.

This increased efficiency increased the industry’s profit margin. So, rather than being spent on payroll, these extra profits were invested in areas such as:

  • Industry research. As federal funding for telecommunications R&D has lagged, the private sector has made up the difference.
  • Development of infrastructure. Development and implementation of next-generation technologies such as mobile 3G/4G and fiber-to-home/office networks require significant expenditures.
  • Dividends to shareholders. Verizon, Vodafone and AT&T lead the pack here with 5-year average dividend yields greater than 3 percent.

Telecom Companies Experienced Above-Average Growth

To get a clearer picture of the changes within the group of more profitable telecom companies, we turn now to Inc.’s list of the 5,000 fastest-growing companies in the nation. It includes companies from approximately two dozen sectors.

It’s important to remember that Inc.’s list is not representative of the entire industry. It’s made up of a very specific subset of companies: those with the highest “percentage growth of their annual revenue over a three-year period.” So it doesn’t list the largest companies, the most profitable companies or an average of all companies. It’s just a snapshot of the most quickly growing companies in any given industry.

Revenue Growth of Inc. 5000 IndustriesRevenue Growth of Inc. 5000 Industries

From 2008 to 2013, telecom’s strongest companies fared relatively well. Total revenue for all telecommunications companies on the list grew 98 percent over the five-year period: from $3.7 billion in 2008 to $7.3 billion in 2013. Since average growth for all industries included on the list was just 69 percent, the telecommunications industry showed better-than-average growth.

Total Annual Revenue of Inc. 5000 Telecom CompaniesTotal Annual Revenue of Inc. 5000 Telecom Companies

Incidentally, the Inc. 5000 list contained 137 telecom companies in 2008, and 129 telecom companies in 2013: a decrease of 6 percent. This is proportionally equal to the 6 percent reduction in total companies operating in the telecom industry shown in the U.S. Census Bureau data.

Mobile and Wireless Lead the Pack in Growth

To analyze the industry’s growth on a more granular level, we categorized all the telecom companies on the Inc. 5000 list into four main sectors. They are:

  • Network services, providers and integrators: Provide backhaul, middle-mile and (non-wireless) last-mile services and integrations.
  • VoIP, unified communications and data hosting services: Focus primarily on the design, production and sales of VoIP and Unified Communications (UC) services as well as off-site data hosting.
  • Mobile and wireless services: Focus on cellular voice and data networks, in-building wireless and wireless network management systems.
  • Hardware design, manufacturing and installation: Focus on the design, manufacturing, sales and service of hardware used in the telecommunications industry.

Once categorized, we compared the number of companies in each category on Inc.’s 2008 and 2013 lists.

Inc. 5000 Telecom Companies by SectorInc. 5000 Telecom Companies by Sector

This categorization allowed us to identify several trends:

  • The number of network service providers on the list decreased 29 percent, from 48 to 34. This is likely due to consolidation, facilitated in part by increased adoption of Voice over Internet Protocol (VoIP) as a preferred medium for voice transmission.
  • The number of VoIP, UC and hosting services companies on the list dropped 17 percent. However, the industry as a whole grew during this period and continues to grow today.
  • The mobile and wireless sector was the only one of the four sectors to have more companies on the list in 2013 than 2008—doubling, from 15 to 30. Mobile has shown strong growth globally and domestically, as people are, for the first time, spending more money on data than on voice calls. Further, implementation of next-generation high-speed data networks, such as LTE, creates demand for companies that design, install and maintain the wireless network infrastructure.
  • The largest drop, 54 percent, was in the hardware manufacturing, sales and services sector. Hardware manufacturing has always been a highly competitive sector, due largely to its thin margins. Though this is most pronounced in the consumer market, it holds true for other markets, as well.

Conclusion

Data from the U.S. Census Bureau shows the telecom industry became more profitable between 2008 and 2013. During that period, the number of companies operating in the industry declined, as did the number it employed. The Inc. 5000 list confirmed the general downsizing trend, showing a reduction in three out of four sectors and strong growth in the fourth.

As network convergence continues to exert consolidation pressure on the industry, it seems likely that the number of companies in the industry will continue to decline overall. The exception here is the mobile and wireless sector, which may continue expanding to keep up with the growing consumer demand for mobile data.

NOTE: The Inc. 5000 lists are compiled from data taken the previous year. This means the 2013 and 2008 lists represent the three-year periods ending in 2012 and 2007, respectively. The U.S. Census Bureau’s information is compiled from data taken two years before it is presented; the 2012 data represents data from 2012, though it was released to the public in 2014. Thus, Inc.’s 2013 list corresponds to the Census Bureau’s 2012 list—and its 2008 list corresponds to the Bureau’s 2007 list.

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Craig Borowski

About the Author

Craig Borowski graduated from Colby College in 1997 with a degree in East Asian Studies. He moved to Taipei, Taiwan soon after to begin a career in journalism, publishing and translation. Craig relocated to Austin, Texas in 2008 and was director of marketing for the U.S. office of Tunze GmbH before joining Software Advice in 2013.

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