10 May 2017
Celebrating Silver Anniversary in the International Telecoms Sector – personal reflections on 1992, 2017 and bit of the Future
Our first client was an investment bank equity analyst. We analysed the UK market, reviewed the incumbent operator’s financial results and network asset valuation and considered the regulatory and market impact. The duopoly had recently ended, there was Cable TV and competition in fixed was very limited while GSM digital service for mobile had just been launched. BT (fixed with Cellnet a 60%owned mobile) reported: profits of £3,073m, paid £999m taxes, and spent £2,565m capex (tangible fixed assets), and earned a 19.3% return on capital with a gearing of 21.1%. BT will publish their 2017 results on 11 May 2017 and these will show their position in a significantly changed market of today, and the way industry and regulation is working in 2017 in the UK.
Today, most countries have much more competition, broadband, TV, big data, social media and a mega mobile business with “intangible assets” such as goodwill, and radio spectrum licences. There is still a regulatory impact, effects of inflation and much higher gearing levels (net debt) to consider.
Arguably the biggest industry change has been in technology in terms of digital networks, the Internet and more recently smart phones. Mobile access is a must have for all of us today and has seen massive customer growth around the world.
The UK telecoms sector also faces the immediate challenge of Brexit. Telecoms companies such as Vodafone are big in the UK but also truly international, reflecting the global nature of telecoms networks as well as a fairly concentrated ownership – in the hands of a few big international players. Mobile operators have now large “intangible” fixed assets such as radio spectrum licences, many were bought for large amounts of money. Intangible values in balance sheets are often nearly as big as the actual tangible asset networks and warrant further research into financial measurement methods. We also have massive “unlicensed” spectrum, e.g. Wi Fi, which has a great economic value if not an obvious book-keeping one.
As an example of today’s issues, we were asked to carry out an assignment for the ITU-R directorate in Geneva looking at the valuation issues of intangible but also real assets such as radio spectrum.
25 years later, a real industry challenge is to measure financially an intangible asset, such as spectrum. How do you measure the financial value of slices or bands of the electromagnetic radio spectrum? Something such as electromagnetism seems to us invisible yet all pervasive, and a fundamental force of nature, all around us, not only on Earth but throughout the Universe! It now delivers are large portion of all our communications.
Can we say what telecoms market might look like in 25 years from now? Predicting the future is not really recommended and very speculative but some broad trends are clear. 5G for mobile is now the latest trend for example. Despite the hype, telcoconsulting believe that fixed networks will still be very much in play with ultra-high bandwidth mobile networks for video and data, with cable and wireless remaining the most fundamental technology. Finally, with the greater interest in space and, for example, in the Mars exploration, maybe an interplanetary telecoms market will be up for grabs and a next challenging assignment!
Sometimes looking way back into the past can be quite informative. Victorian Telephone Directories, written 133 years ago showed that The United Telephone Company Ltd in London showed its phone rental of £20 p.a. which compared favourably with other capitals: Paris £24, Moscow £25, New York £30 and £42 (special exchange service). The international comparisons were used then, are now, and will be in the future in an increasingly competitive global telecom world. Bob Franklin
To celebrate our 25 years anniversary, we are holding an innovative and interactive working seminar, and we hope to see fellow industry professionals from regulatory technical and business finance. This will be hosted by techUK London on 13 June 2017