Telecoms: High Dividends, Heavy Debt, and Slow Growth — Why and How to Own Them

AT&T once offered a dividend yield above 7%. Then in 2022 it cut that dividend by roughly 50%, and the stock lost tens of percent of its value over five years. For investors who had bought AT&T as a "dividend machine," it was a cold shower. The AT&T story is actually the best possible introduction to thinking about telecoms correctly.

Why Telecoms Don't Behave Like Other Utilities

Telecom companies look superficially similar to utilities (electricity, water): regulated, predictable subscription revenues, high dividends. But they have one crucial additional characteristic — they must invest massively in infrastructure that becomes obsolete. An electrical grid from 1970 still works. A mobile network from 2000 no longer suffices.

Building out 5G networks cost AT&T and Verizon tens of billions of dollars. Add to that the historic media acquisitions (AT&T bought DirecTV, then Time Warner), which never delivered the promised synergies and instead piled on debt. The result: companies burdened with enormous debt, minimal growth, and stressed dividends.

AT&T and Verizon: An American Duopoly With Limits

AT&T (T) is a simplified company post-2022 — it shed its media segment (Warner Bros. Discovery), cut the dividend, and refocused on telecoms. Debt remains high, but the company shows stable operating cash flow from mobile and broadband services. The dividend yield today is around 6–7%, but investors' past experience is a warning.

Verizon (VZ) maintained a cleaner telecom profile — it didn't pursue media acquisitions on the same scale. Its dividend is more stable, but Verizon isn't growing quickly either. The American mobile market is saturated and competition is largely a price war with T-Mobile.

Deutsche Telekom: Europe's Exception Thanks to T-Mobile US

Deutsche Telekom (DTE) is an interesting exception in the telecom sector. It holds a majority stake in T-Mobile US, which is the fastest-growing American mobile operator. This exposure gives DTE a character that differs from other European telecoms.

The German and European telecom business is duller on its own — regulated market, price pressure, 5G investment. But T-Mobile US added a growth component that changes the risk profile of the whole company. For investors seeking telecom exposure in Europe, Deutsche Telekom is a more sensible choice than British Telecom or Telefónica.

Small and Mid-Size Telecoms: A Different Equation

Beyond the American and German markets, interesting opportunities exist in emerging markets where mobile penetration is still rising. MTN Group (Africa), América Móvil (Latin America, controlled by Carlos Slim), or Bharti Airtel (India) represent a different type of telecom investment — higher growth, but higher political and currency risk.

For medium-term investors, these names are interesting as a complement to developed markets, not as a primary telecom bet.

When Telecoms Make Sense

Telecoms are suited as a defensive portfolio component for investors with medium or shorter time horizons, seeking relative resilience in a recession and steady income. They are not suitable as a primary growth holding or for reinvestment-focused investors who rely on compounding equity returns — the sector has historically underperformed the broader market over the long term.

• For income: dividends are real, but debt must remain under control
• For defense: predictable subscription cash flow, low recession sensitivity
• For growth: unsuitable — saturated markets in the developed world, limited organic growth

Sectors in a portfolio always serve a specific role. More on choosing ETFs for specific goals in the ETF guide. This is not investment advice; dividends are not guaranteed and past performance says nothing about the future.

5G and Debt: Why Infrastructure Investment Doesn't Create Shareholder Value

Building out 5G networks was presented as a historic opportunity for the telecom sector — new market opportunities, IoT, autonomous vehicles, Industry 4.0. For shareholders, however, 5G has proven to be an investment project with uncertain returns, financed by debt.

AT&T spent over $23 billion in 2021 on 5G spectrum auctions. Verizon spent over $45 billion. Add the cost of the actual network buildout. The total cost of America's 5G rollout runs into hundreds of billions of dollars. Yet no killer application has emerged that would generate disproportionately higher revenues. Customers pay slightly more for 5G than 4G — but nowhere near enough to cover those investments with an acceptable return.

This is the fundamental problem with telecoms as an investment: companies must invest massively in infrastructure that delivers marginal added value to customers who aren't willing to pay premium prices for it. The result is debt without a corresponding revenue engine.

Mobile Payments and Telecoms as Fintech: An Unfulfilled Thesis

A decade ago, there was discussion about whether telecoms would become financial players — mobile payments, digital banking, loyalty programs. In Africa, it worked (Safaricom's M-Pesa is a phenomenon). In Europe and the US, that thesis was captured by Apple Pay, Google Pay, and traditional banking apps. Telecom companies remained pipes — valuable infrastructure, but without control over the application layer where margins are made. This structurally limits their growth potential in developed markets and explains why investors prefer platform companies over network operators.

Market Consolidation and Satellite Broadband: A New Threat?

Starlink and other satellite broadband projects (Amazon Kuiper, OneWeb) threaten the terrestrial telecom business in sparsely populated regions and where fiber infrastructure is absent. In densely populated cities, fiber is still significantly more capable and cheaper. But the geography of the telecom market is changing — some customers currently paying rural broadband to telecom companies will migrate to satellite.

The saturation of developed markets combined with this satellite internet competition gives the telecom sector limited scalability. Dividends and stable cash flow remain attractive characteristics for the conservative portion of a portfolio — but investors must not expect technological growth or price appreciation from telecoms. You're buying stability and yield, not growth. A comparison of defensive approaches can be found in the dividend aristocrats article.

How to Include Telecoms in a Czech Portfolio

For Czech investors, telecoms are accessible either through American stocks (AT&T, Verizon via brokers with NYSE access) or through European ETFs focused on the communication sector. Direct Czech or Slovak telecom companies (O2 Czech Republic) are small with low liquidity. A pan-European or global communication ETF is therefore a more practical route to diversified exposure.

Keep in mind that communication ETFs like iShares MSCI World Communication Services also include Meta, Alphabet, and Netflix — this is not a pure telecom product. If you want pure dividend-focused telecom exposure, you'd choose individual stocks or more specialized products. Telecoms account for roughly 2–3% of MSCI World — those who want meaningful exposure must actively increase allocation above this implicit level.