Why You Should Not Invest in Telecommunication Companies

With Alexander Graham Bell’s invention of the phone, came the birth of the first phone company, the Bell Telephone Company in 1877, and since then, the telephone industry has been booming. People who jumped on this bandwagon and invested in telecom companies found a goldmine and made fortunes.

However, in today’s modern age, the Internet has changed the game, especially for the big telecom companies. And as we’ve found many things to move across the web – messages, music, products, and the ever-present porn – now we’ve found a way to use the Internet to reach out and touch somebody (no pun intended) through voice communication. We can use Skype, Gchat and Yahoo Messenger to call our loved ones across the city or across the Globe. And now, with smart phones and data over GPS, Edge, 3G and 4G, we’re not even tied to the computer – it truly is an age of “anytime, anywhere.” Using iPhone applications, we can stay connected to the rest of the world.

One such free iPhone application is Viber, from Viber Media Inc. Viber allows you to make free calls using your 3G data plan or Wi-Fi, cutting down on call costs. With Viber, you can make free calls to other Viber users – no matter where you are in the world. Let’s take a quick look at Viber:

The Pros:

* Uses Wi-FI or 3G

* Simple set-up – using your own number, Viber can identify your phone. After launching the iPhone application and inputting your number, you receive an SMS to confirm the set-up

* Can be used as a replacement to Apple’s Phone application. When you call or receive a call from a Viber user, it uses the Viber app. If the person you are calling is not on Viber, then it switches to the regular Phone app.

* Excellent phone quality, and can even be better than regular phone calls.

The Cons:

* Uses up your data plans – unless you have unlimited data or calling friends on Viber abroad, regular calls can be cheaper, depending on you call plan.

* Single ringtone – you can’t customize Viber’s ringtone depending on the caller (good luck trying to avoid your mother’s calls)

* Phonebook synching – your iPhone’s phonebook might not be compatible to Viber’s, unless you change the number format to “(###) ###-####”.

* Can’t access voicemail, so it doesn’t quite replace the Phone app entirely

* Instant notification to other Viber users in your phonebook – maybe you might not want to tell everyone you’re on Viber (think of your exes, your mother or your boss who might use this an excuse to bother you on your vacation in Antigua – it’s cheap after all!)

What does this trend mean to existing telecom companies? Well, for one thing, data plans will become increasingly popular, for one.

However, telecom companies may find their average revenue per user (ARPU) fall – after all, why would you pay full price for all the other extras (caller ID, Voice, SMS) when you can get by on an all-data plan?

This is one reason why I always advise against investing in the telecommunication industry. Companies have no real competitive advantage and they tend to kill each other with new forms of communication and prices.

For more information on how you can invest safely in the stock market through value investing, check out my blog on stock market investing.