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For the longest time, utilities have been defined as infrastructure services mostly confined to the primary needs for day to day living such as water, electricity and natural gas for the purpose of providing heating, electricity and usable water. Different countries will have different costs and regulations but generally speaking, those resources represent the service from utility companies.
In most personal financial software, you are provided with the options of categorizing your bills by electricity, natural gas and/or water. Money Sense magazine also makes a distinction between hydro/gas/water and cell phone/internet/TV in their ‘Family Profile’ section where they review a family’s financial situation. Obviously, it makes sense to split them as you could always look at optimizing your telecom spending whereas it is much more difficult to do so for hydro/gas/water without going through some renovations.
The formal definitions aside, the behavior that family exhibits surely shows that telecoms are as much a necessity as hydro or gas. It was not always like that, this behavior is quite recent. I had a look at the revenue generation from the telecoms last summer and it’s clear that wireless catapulted the telecoms to new highs.
Here is a table outlining the annual spending of families as reviewed in the Money Sense ‘Family Profile’ section. You can see that the telecom spending is quite consistent for all families. My spending is shared in the first row to compare. Living on the west coast doesn’t require high heating costs in the winter or expensive cooling in the summer. You’ll find out that the average spending on telecom services is $2,000 while the hydro and heating costs average to $3,339. If you think back to the days when you had a land line and a simple cable tv, the costs were much lower. You can estimate 20$ for phone and 60$ for cable for $1,000 per year if you add some long distance fees to it. Can you see our increased reliance on the telecoms?
Money Sense Issue | Telecoms | Utilities |
|---|---|---|
| My 2010 Cost | $2,496 | $1,944 |
| Feb./March 2011 | $2,500 | $3,600 |
| Nov. 2010 | $1,800 | $3,000 |
| Sept./Oct. 2010 | $2,500 | $3,739 |
| Summer 2010 | $3,389 | $4,643 |
| May 2010 | $2,100 | $3,400 |
| Feb./March 2010 | $1,575 | $3,100 |
| Dec./Jan. 2010 | $1,450 | $2,800 |
| Summer 2009 | $1,270 | $2,435 |
I wanted to highlight the fact that telecoms should be seen as utilities from an investment perspective as they too, like utilities, have monthly subscribers sending a healthy amount of money into their coffers for a service. They also provide a service that families cannot live without anymore. As much as we can reduce the cost by eliminating features, we can hardly live without their services without making life style adjustments. How many of you can say your cell phone bill went down over the past year? How many young adults are raised with internet and cell phone as part of their day-to-day life?
From a business perspective, competition is definitely more present with the telecoms but it hasn’t really led to lower prices (at least in Canada). The demand for more bandwidth continues to push for inovation which requires spending in research and infrastructure. The demand is partially driven by us. What they have in common is that they are both regulated to ensure they don’t take advantage of the consumers.
Readers: How does your telecom bill compare to your utilities?
I’m not getting rid of my cell phone any time soon, neither is anyone else. The only thing that will hurt telecoms in the future is people getting rid of their landline.
Very predictable money revenues plus a dependence on the product equals close enough to a utility for me.
Thanks for the comment.
I think our dependence for more will make a difference over time. Who would not want constant access to wireless for any devices?
Nice post.
I always saw it this was as well. Cable, phone and/or internet are essential services in our information age.
Unfortunately, we fork out about $2,400/year for those “essential” services. Livin’ comes at a cost, but I won’t give it up
My Own Advisor recently posted..My quick response from TransAlta investor relations
Really good point!
There are lots of people who are out there who haven’t gotten a smart phone yet. Once you start, you can’t go back! (I was a recent convert myself last year).
And HDTV? All that cable? Internet?
I agree, these are all essentials that the average Canadian family can’t live without. I certainly can’t give up the internet. Cable, maybe. But not the internet!
youngandthrifty recently posted..How Do You Afford Your Rock and Roll Lifestyle
When I think of the word *telcom* I think of an old LandLine based company that han’t really moved toward the internet world. Think it is just a bad connetation lol
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I have loved several Telcoms. I most recently invested in FTR, but they recently had a reverse merger with Verizon Rural, and I sold until I can see how that pans out. What I love is they pay great yields. In the 5 years I owned the stock, I was paid a total of $6 per share, and the stock traded around $7 per share.
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I hear goo things about Telefonica and France Telecom but I have not made any move to literally own these foreign companies. They have been paying some really good yields as well and you can buy them on the NYSE.
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