Regardless of their investing philosophy, most retail investors are interested in growth. Income investors know without growth dividend payments are at risk. Value investors know without growth the company’s intrinsic value will decline. Growth investors prefer companies that reinvest profits in growth opportunities rather than in dividend payments.

The principal means companies have at their disposal to grow are from within – organic growth – or from without – mergers and acquisitions.

Organic growth involves new products or services; new pricing strategies; and expansion into new markets. Mergers and acquisitions involve buying or merging with a market competitor to expand market share or diversify into a new market sector.

Although the prospects of market share increase and reduced competition can spur investor enthusiasm, sometimes the results are not what is expected. With the rise of mobile technology and a connected world, the telecommunications sector flourished. In a field crowded with rivals, the M & A activity consolidating the sector comes at a cost.

First there is the issue of the actual costs of the acquisition and the subsequent costs of integrating the two companies. Many investors don’t like taking on additional debt and abhor capital raises. Second, there is the question of market growth. Does sector consolidation simply mean fewer players chasing slowing growth?

2015 was a banner year for M & A activity in the Telco sector, with companies like M2 Communications, NextGen, iiNet, and Amcom disappearing from the ASX. The expectation was the remaining big players would benefit. The following price movement chart compares the five-year performance of the biggest players remaining on the ASX.

Within a year of the shrinking of the ASX Telco class, the share prices of those still standing began to decline in the face of worries over the impact of the NBN (National Broadband Network) and growing concern over market saturation.

Flash forward a few years and the Telco sector is back. As of 11 July of 2019, the XTJ Telecommunications sector year over year returns remain atop the returns of all ASX sector classifications.

This is somewhat surprising given the analyst growth forecasts, and lack of them, of the following ASX listed telecommunication stocks.

At first glance, appears from the 2015 acquisition binge, only Vocus Group (VOC) emerged as anything remotely approaching “winner” status, given its double-digit earnings growth forecast.

Despite the falling stock prices in the aftermath of the consolidation, market participants gleefully piled in to shares of TPG Telecom (TPM) when that company announced its intention for yet another merger, this time with Hutchinson Telecommunications (HTA).

The ACCC (Australian Competition and Consumer Commission) opposes the merger, claiming “Australia already had concentrated mobile and fixed broadband markets.” TPG had shelved plans to roll out a new mobile network following the merger, which the ACCC believes they will now proceed with that plan. On HTA’s Vodafone, the ACC feels the company’s potential move to fixed broadband services combined with TPG’s new mobile network should improve competition and “future market contestability.”

What may be driving investor enthusiasm for the sector is the Australian 5G rollout. The arrival of 5G is another of many technologies touted as “capable of changing the world.” 5G Networks are projected to be ten times faster than current 4G networks.

As possible evidence to support the view enthusiasm over the coming of 5G networks to Australia, one only need look at the share price performance of a 2017 arrival on the ASX, 5G Networks (5GN).

Listing on 30 November of 2017, the share price has risen 478%, from an opening price of $0.28 to its 8 July of 2019 price of $1.62.

The company is focused on the business sector, offering a range of digital services from managed IT services, to data networks to data centres and the cloud, with the expected network rollout to come in Q3 of 2019. The company appears to be gearing its services up to take advantage of the coming dramatically increased speeds of 5G networks. Some investors may have been fooled by the company’s name, as it primarily operates as a provider of digital services to businesses, not strictly a 5G network operator.

Telstra Corporation (TLS) and its principal rival Optus – a subsidiary of Singapore based and former ASX stock Singtel — have operational 5G networks in place in limited areas and are in the process of expanding across Australia. Hutchinson’s Vodaphone expects to have its 5G networks in place in 2020. TPG Telecom (TPM) had planned to use technology from China’s Huawei Technologies in its planned 5G network, but the federal government has banned the beleaguered company from any involvement in Australia’s 5G network due to security concerns.

TPG has been one of the ASX star performers since listing in 2001, with the share price rising close to 2400%. The uncertainty surrounding its next moves suggests adopting a “wait and see” posture.

Telstra Corporation (TLS) had a long and celebrated history of one of the best dividend stocks on the ASX since listing in 2007. The company was in a virtual monopolistic position, owning Australia’s entire copper network, until the NBN came along. The NBN essentially bought the network from Telstra, but the company still went through a series of asset write-downs and other NBN related issues, sending the share price plunging.

Telstra’s recent rise from the ashes has been helped substantially by the cancellation of the 5G network plans from its primary ASX listed rival, TPG Telecommunications as well as the opposition to the TPM/HTA merger. The company’s Half Year 2019 results were far from spectacular, with income down 4.1% and NPAT (net profit after tax) falling 27.4% attributing the slide to continued impact from the NBN. On the positive side, Telstra reported “more than half of the impact of the NBN is now absorbed with approximately 55 per cent of premises connected.”

Vocus Group (VOC) operates an extensive fibre optic network in Australia and New Zealand and a “world class infrastructure platform connecting Australia and New Zealand to Singapore, Hong Kong, and the United States. The company serves both consumers and business and government enterprises, with broadband internet service, voice and data, and data centres. Vocus recently extended its agreement with Optus Wholesale, possibly giving Vocus access to the Optus 5G networks.

The company reported earnings per share (EPS) of $0.106 In FY 2018 which is expected to increase to $0.165 In Y 2019 before slipping to $0.15.7 in FY 2020. However, the company faces significant challenges, as evidenced by the decision from AGL Energy (AGL) to walk away from a proposed takeover of Vocus.

The company has yet to fully benefit from its merger with M2 Group and has now announced a three-year turnaround strategy, suggesting investors with a low tolerance for risk might want to add VOC to their “wait and see” watch list.

Hutchinson Telecommunications (HTA) was the first 3G mobile network provider dating back to 2003. In 2009 the company merged with Vodaphone Australia. Together with TPG, Hutchinson plans to appeal the ACCC’s decision on the merger to the Federal Court of Australia.

Macquarie Telecom Group (MAQ) is the only share in our table with an analyst rating of BUY, albeit from a single analyst. The company has catered strictly to the business and government sectors with hosting and cloud services along with voice and data options as well as internet services. For government customers, Macquarie offers secure data centres, cloud security, and cyber security. The company has increased both revenue and profit in each of the last three fiscal years. The AFR recently reported Macquarie is about to launch Nu Mobile, offering mobile phone plans bundled with used handsets, its first foray into the consumer market.

Amaysim Australia (AYS) is somewhat unique in the sector since venturing into a new business segment, acquiring click Energy Group Holdings Pty Ltd, a company offering discounted electricity, solar energy and gas.

Its core business has a history of innovation in bringing simpler and more cost-effective mobile plans and services to consumers. Founded in 2010, the company disrupted the traditional telco model, selling only the SIM card and mobile services, allowing consumers to “bring your own (BYO) phone.

The company has been operating its mobile network on the Optus 4G Plus network and that agreement was recently “revitalised to better align with Amaysim’s growth strategy. Amaysim is rebranding itself as a home service provider, closing its online device stores and selling its fixed-line broadband business in 2018 to focus exclusively on consumer voice and data mobile plans and energy plans.