Stocks: The Trouble with Telecom

After a traumatic beginning, the year 2009 has turned out to be a great year for U.S. stocks generally. But one sector of the market, telecom, wasn't allowed into the party.

In a year when many stocks have doubled on hopes of an economic recovery, telecom has been wounded by its reputation for slow, steady growth. While the Standard & Poor's 500-stock index is up 21% this year, the S&P 500 telecommunication service sector was down 1.6% year-to-date as of Nov. 27.

That's the only one of the broad index's sectors in negative territory. The tech sector has gained 50%, while consumer discretionary stocks have risen 35%.

Telecom's troubles are well-known on Wall Street. First, there is uncertainty about the effect of new regulations, particularly from the Obama Administration's Federal Communications Commission, or FCC.

Second, the recession has accelerated the trend away from traditional landline phone service, as more companies and residences cut lines or decide to switch to wireless, Internet, or cable phone service.

Third, competition among telecom players is fierce, both in offering new services—such as wireless smartphones—and in lowering prices.