Here’s why these broadband and mobile services stocks are worth buying

Expansion needs and competition may be pushing the industries into a consolidation period.

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The broadband and mobile phone services industries are growing at a fast pace. Companies must be highly competitive to attract and keep customers. They have to be fluid in growth, which may mean expanding into wider regions or acquiring competitors.

These three companies are moving ahead at a time when a consolidation period could take place. You should know the best performing businesses that could give you a good return.

Coming off the back of acquiring the internet service provider AAPT, TPG Telecom Ltd (ASX: TPM) is taking up a bigger space in the broadband and mobile phone service industry. Its share price is up about 96% in the past 12 months, giving it a PE ratio of almost 30.

It is moving ahead with creating an alternative broadband network that would rival download speeds of the national broadband network (NBN). That was the strategy in the purchase of AAPT, which had built up an extensive internet hardware network.

It will also be taking part in the NBN system and plans to offer unlimited download service at a price lower than its competitors. In its recent interim report it stated broadband subscribers grew by 36,000 organically and the average revenue per subscriber was up.

Telecom giant Telstra Corporation Ltd (ASX: TLS) could be a steady grower for investors as it increased earnings per share by 8.7%. It ratcheted up its past solid dividend by raising its interim dividend to 14.5 cents per share.

Its 4G mobile network now covers 85% of the Australian population. As the biggest provider of broadband service, it is moving to cement its market dominance by bundling broadband, mobile and digital entertainment content in one package.  It owns 50% of Foxtel pay TV and together with the other 50% owner, Twenty-First Century Fox Inc (ASX: FOX), it plans to increase online content and video-on-demand services.

Its dividend yield is 5.6% and the PE is 16, which is at its industry average.

Another great growth stock is iiNet Limited (ASX: IIN). In the first half of FY2014, it scored a 19.5% gain in underlying net profit and a 20% rise in earnings per share. The internet service provider has tripled revenue and underlying net profit in the past five years.

It is also expanding its online video streaming service by offering Fetch TV. Combined with mobile and broadband service, it will be an attractive package for its customers.

In the half year, broadband customers increased by 16,000. The company now holds about a 25% share of the NBN broadband market. This business expansion brings it closer to becoming one of the top broadband service providers.

The growth and success is also attracting attention from its competitors like TPG Telecom. The rival may be interested in doing something with iiNet as it is coming off a great half-year result as well.

Foolish takeaway

The broadband and mobile services industry is going through an exciting phase and one that could start a consolidation period. TPG Telecom and iiNet are fast becoming leading companies in their own right, acquiring junior businesses to add to their growth.

Telstra is making more investments in overseas ventures as the largest telecom company in Australia seeks growth in digital entertainment and telecom services in Asia. It has the finances and business structure to make those moves. Shareholders can enjoy the high dividend yield as they watch the growth story continue.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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