The CAPEX dichotomy

I am into selling ones and zeros and transporting them better than anybody else.
Randall L. Stephenson
(CEO of AT&T)

The table below (as researched on 17 July 2015) is a tale of two ages in the world of communications. The first set of five are carriers, organisations born in the industrial age that are asset-heavy and rely on those assets to derive a bulk of their income. The second set of four are information age organisations that are less asset-heavy and rely on software, services, content and IP (Intellectual Property) to generate revenues.

Organisation Market Cap (USD.B) Assets (USD.B) Liabilities (USD.B) Asset to MC Ratio
AT&T 181.8 308 221.5 0.6
Verizon 194.1 235.8 226.4 0.8
China Mobile 257 209 70.9 1.2
Vodafone 98 182 83.7 0.5
Deutsche Telekom 82.8 149.2 119 0.6
Google 478.1 138.1 27 3.5
Tencent 186.6 32.7 18.4 5.7
Facebook 266.6 42 4.5 6.3
Baidu 69.6 16.6 7.8 4.2

Do you notice the differences between weightings / ratios of assets to market caps for each of the two groups?

Do you also notice that all of the first group have a restricted reach, whereby they originated in one country although they have spread their networks into some other countries? *

As Internet companies, the second group are accessible globally, or at least anywhere where the Internet is available. As OTT (Over the Top) organisations, the second group (Internet organisations) relies on the first group (CSPs) to connect customers to their services. But I’m guessing you knew that already.

The market clearly indicates that it rates Internet companies more highly, valuing their modern business models with lower asset base, global reach and higher intangible components. Carriers have fantastic, tangible assets but due to competition and increasing capacity, these assets are tending to deliver diminishing returns.

OSS were originally built to manage the assets of CSPs, to help deliver carrier services more efficiently, so they are all the more relevant in this world of diminishing returns. The question is though, how are OSS evolving to remain relevant to the newer information-age business models too?

* CSPs do of course have partnership agreements to extend their reach at points of interconnect with other carriers.

** Thanks to Brad Howarth for sowing the idea seed for this blog.

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