If you’re reliant on private capital to build and upgrade internet infrastructure, what matters is rates of return on other potential investments that are competing for the same sources of capital.
But you are not - as I recall there are subsidies given to the telcos and telecom spectrum and rights of way are on public grounds.
So from the get to it’s not comparable to other industries.
A specific weakness of your argument - Your position holds for a certain kind of investor but has nothing to do with running a business of building a business- nothing to do with Operations.
The risk profiles and returns on telecom are known, and so investors in it know what they are getting.
So telcos can raise debt, with maturity and interest rates suitable for them.
And financiers spread risk. If black stone doesn’t want to invest in telecom, some other firm or telecom focused fund will invest.
At the end of the day, there are only so many above average or average returns you can get per billion of dollars - so people invest in multiple industries.
And when they invest - they examine (comp/compare) the firms against the others in their market.
> But you are not - as I recall there are subsidies given to the telcos and telecom spectrum and rights of way are on public grounds.
Mostly not true. In rural areas, telcos receive subsidies. Those subsidies are paid for with taxes on telecom services. Telcos based primarily in urban/suburban areas bear a net tax, not a subsidy. Telcos pay for both spectrum and rights of way, such as rental charges on utility poles.
> The risk profiles and returns on telecom are known, and so investors in it know what they are getting.
We’re in an environment right now where a huge segment of telco revenues, for video, could evaporate due to cord cutting. The percentage of high income households which have cut wireline service entirely (in favor of wireless) has grown from 6% to 15%. People have been reluctant to switch from cable to faster technologies like fiber, with FiOS struggling to clear 40% uptake rates. Investing in a telco today (or a wireline project specifically) is not like investing in a electric or water utility (or the phone company back in the day)—there is real risk.
If you want to actually skip to the end and see the ARPU chart, feel free.
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>mostly not true
Mostly not true is 1 for a binary yes and no scenario. The question at play was the comparability of telecom to other industries.
The fact of subsidies, spectrum, and right of way make this is a non comp, which make the chart being shown irrelevant.
If you truly believe that a simple industry ROIC comparison makes a difference, explain how that makes an iota of impact to AT&T or Comcast in terms of their Capex decisions.
Are they going to pull up their wires tomorrow and go all in and become Google?
Will they Not invest in capex at all? Or Seek money from the markets?
They will - and the markets will ask a known set of questions:
Are The revenue streams for pharma, or movies, or insurance of the same periodicity as telecom? What are the running costs, manpower costs?
How cyclical or not is telecom? What are the operating margins? What is net profit or EBITDA?
How much return on capital can they expect for the next 4 years, or 10 or 20? Or forever?
This is not an argument I am having with you. I am telling you, that industry comparisons are done within the same industry.
For the same reason that when buying microwaves, you don't look at refrigerators.
Each market has their own forms, issues, strengths and weaknesses.
ALL investors at the level where a capex influencing financial investment arises, are aware of this.
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As for the risk - its risk, not uncertainty.
Its pretty much a line item on multiple excel sheets all around wallstreet.
It will influence number of users by 10% over the next 15 years,
which will turn into an ARPU of X for these years.
This will in turn turn into revenue for that period, which will be then reduced down to an expected value of the firm today.
Hell, the expected rate of interest, could easily have a greater impact on the share price and risk of a telecom firm than cord cutters.
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Its very hard not to invest in such an industry which obviously has so many things going for it that it can persist in this manner.
So for example pharma rates of return would be irrelevant.
Saw that chart - that’s exactly why you never use a chart like that, it’s effectively prejudicial without context.