For a possible answer to the question, let’s look at two drivers for good performance in the stock market:
1/ there is very high trust in the market that in the future, the company will be dominant and outperform—look at e.g. Tesla, they “only” sold 100k cars in the last quarter, but everybody goes crazy, because the cars are cool and all electric (I’m sure Toyota sold 10 times that NB at least)
2/ the company has some really solid profit figures over time and those figure show growth
With regards to performance, infrastructure providers profit by 1/ . There is not too many providers out there and per country there are several networks to be renewed/equipped in 5G technology. It is quite widely accepted that this is great news for those companies and that turnover will grow. The Huawei story gives some extra boost for the Ericsson, Cisco and Nokia’s of this world.
On the other side, telco providers get hit by 1/ and 2/ .
Firstly, they have to pay for the infrastructure, and the frequencies, so there is a high cost up-front.
Secondly, the big established companies haven’t been great (at all) so far at demonstrating that they can transform new technology into new, attractive product offers / IoT verticals which corporate or consumer customers want and are ready to pay big $$ for. For the time being, only very few companies have successfully managed to turn the general decline of revenue of “classic” offers around with new innovative offers such as IoT verticals. Those examples tend to do better in the stock market as well (a little, because the general telco mood weighs on them too).
Well, don’t confuse stock market performance with the financial performance of the companies, there is no direct correlation between them.
The stock value represents an expectation from the company, and includes some hype. Considering that the Telcos lost their appeal due to the huge mobile market, they don’t look promising, which is reflected in the stock prices.
However, Telcos still have huge customer base and income, they are profitable, and can modernize their infrastructure and look for new revenue opportunities, and this is the reason for the inconsistencies you have detected.
In the Telecom Valuation there is some subtle belief that there can be invented some magic killer app which will enable telecom operators to monetize the existing infrastructure. That belief is mainly circling around the high-ARPU Western markets like EU and US. As a comparison - similar size Chinese or Indian operators are valued much cheaper compared to the ones on “rich markets” !
IMHO is a long term bet. Commoditization in the Telco market is a fact, but some Internet companies identify an opportunity bundling the connectivity with other services where customers identify more value. Imagine buying the new iPhone in a subscription service by 70€ monthly fee, connectivity included… Networks are assets more attractive than customers for those that have the customer relationship right now and deeper info about them like Internet companies. Summarizing my opinion, the old telco model has a perceived value lower than a total “cut-the-cord” model where the network is bundled with high perceived value services.
Telecom infrastructure is a non-volatile asset, that is, a good investment in the long term. If such investments are done wisely then the normal operation of the business will pay for them. This is why telecom infrastructure is valuable.
On the other hand, stock markets have at least three references for their price: related to the value of the company “in the books” (the value of assets), related to the capability of the company to generate sustainable cash-flows (sustainable stakeholders benefits), and the speculative price (gamble on the evolution of economy or even humanity).
In the case of telecom operators they failed on the speculative (over the top business turned out to be the winners), and cash-flows are not guaranteed since their business and organizational structures are far from competitive by now. So, current value is… the assets.
As a conclusion, telecom operators stocks are good for investments for the retirement. But which is more interesting is that operators need to transform organizational structures as well as build new wise positions in the market: good source of work for freelancers!
Telecom Infrastructure had been diversified long ago with less investment and much profitable scheme. Site sharing was implemented in which no operator need to build a new infrastructure, they would rather share and pay the rent. With this option millions of infrastucture expenditures were saved. Eg: building new towers, new roof top sites, building bill board sites, building new In-Building sites and maintaining it. A new era of Value Added Services were designed and it lead to IOT and fast growing industry. Expansion in IOT will re-name the Infrastructure Brands and re-evaluate the stock markets. Investment could be done in share markets with a new diversification.
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