The capital gains of telecommunications companies are ordinary (and are declining), competitive advantages are deteriorating or even disappearing, and changes in rules and new technologies have made the telecommunications industry more competitive. Although some areas of the telecommunications industry are more stable than others, all value assessments must carefully consider the issue of financial security before investing.
Investors in telecommunications companies must pay special attention to the company's profitability. Commonly used indicators in this industry are interest, taxes, accounts receivable and EBITDA (profit+depreciation and amortization expenses), which can help us judge the company's ability to generate cash to support capital expenditure needs and debt service. Declining EBITDA may be an early indicator of competitive pressure or operational inefficiency. In addition, the indicator used to measure liabilities commonly used in the telecommunications industry is debt/EBITDA. If this ratio is higher than 3, it should be vigilant.
The telecommunications industry is a capital-intensive, high fixed-cost industry. Ample cash flow is critical to success. In addition, we must pay close attention to changes in gross margins rather than being tempted by a moving story. Before investing, a comprehensive risk assessment is necessary and there must be a sufficient margin of safety. But we should also see the difference in the telecommunications industry between China and the United States. Similar to the technology industry, overly optimistic expectations may make the telecom industry's investment yields less than satisfactory. Sometimes, history tells us that production technology stimulates the development of productivity, but it does damage to profits.