Industry Overview - The Zacks Diversified Communication Services industry is facing challenges such as high capital expenditures for 5G infrastructure, unpredictable raw material prices, supply-chain disruptions due to geopolitical tensions, and high customer inventory levels [1] - The industry is expected to benefit from accelerated 5G rollout and increased fiber densification in the long run [1] Current Market Conditions - Companies like Telenor ASA, Telecom Italia S.p.A., and VEON Ltd. are likely to benefit from increased demand for scalable infrastructure due to the proliferation of IoT and the transition to cloud networks [2] - Demand for traditional telephony services is declining as customers switch to lower-priced alternatives and migrate to IP-based services, exacerbated by ongoing geopolitical tensions [4] Strategic Focus - Companies are focusing on providing customized support services to small and mid-sized businesses (SMBs) to improve profitability and adapt to technology advancements [5] - The industry is also offering free services to low-income families and enhancing wireless connectivity to address operating risks [5] Supply Chain and Cost Challenges - The industry continues to face a shortage of chips and high raw material prices due to inflation and economic sanctions, impacting production costs and schedules [6] - Extended lead times for basic components are likely to further escalate production costs and affect profitability [6] Profitability Outlook - The growth of video and bandwidth-intensive applications has led to significant investments in LTE, broadband, and fiber, although these investments have compromised short-term profitability [7] - The industry is transforming from traditional telecommunications firms to technology-driven companies to meet growing demand [7] Industry Performance - The Zacks Diversified Communication Services industry ranks 184, placing it in the bottom 25% of over 250 Zacks industries, indicating bearish near-term prospects [8][9] - The industry has underperformed compared to the S&P 500 and the broader Zacks Utilities sector, with a meager growth of 0.7% over the past year compared to 21.1% and 6.3% respectively [10] Valuation Metrics - The industry is currently trading at a trailing 12-month EV/EBITDA of 11.93X, below the S&P 500's 17.79X and the sector's 14.98X [13] Company Highlights - **Telenor ASA**: Recently completed a $15 billion merger with Axiata Group, with a current-year earnings estimate revised upward by 14.1% to $0.89 per share, and a stock gain of 34.2% in the past year [16] - **Telecom Italia**: Achieved a 101% stock gain in the past year, with current-year earnings estimate revised upward by 188.9% to $0.08 per share [17] - **VEON Ltd.**: Stock gained 112.6% in the past year, with current-year earnings estimate revised upward by 112% since June 2025 [21]