The Capital Cycle Podcast Telecom-Moditization
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Sep 6, 2024 Charles Carter, a European Portfolio Manager at Marathon Asset Management, dives into the tumultuous history of the European telecom sector. He discusses the pitfalls of inflated valuations and the struggle of companies like Vodafone amidst regulatory challenges. The comparison with the more consolidated US market highlights the difficulties faced by European firms. Carter shares insights from Marathon's investment experience with KPN, emphasizing how market dynamics and regulation hinder profitability, raising questions about the sector's future viability.
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Telecom Investment Challenges
- High valuations in telecoms attract excessive capital, leading to disappointing returns.
- Lack of cost of capital coverage, despite capital not leaving the industry, also hurts investors.
US Telecom Transformation
- In 2003, Vodafone's CEO lamented the US telecom market's over-competitiveness and low returns.
- Today, after consolidation, the top three US players have 90% of connections and higher ARPUs.
European Telecom Fragmentation
- Europe has over 50 mobile and 100 fixed-line operators, many subscale, resulting in low returns.
- Regulators prioritize consumer protection and low prices, hindering consolidation despite industry's low cost of capital coverage.