Rapidly shrinking telco values.
Over the last decade we have seen a dramatic decrease in the market value of the telcos. In the run-up to the functional separation of BT I remember seeing valuations of that company’s assets at below the £10 billion, something like four times smaller than the estimation it made of its bottom valuation.
And in Telecom New Zealand’s negotiations to sell its Australian AAPT arm it is facing the reality that a $1.5 billion purchase in the year 2000 has dwindled in value to perhaps even below $400 million.
I was amazed to read in the book, Power of Pull, recently launched by John Seely Brown (former- Chief Scientist of Xerox Corporation) that the asset values of the Fortune 500 companies have dropped 75% since 1965 and are rapidly approaching zero (within the next ten years). This fits very well in the context of another book I recently mentioned in my blog: The collapse of complex businesses, by John Tainter, written in 1988.
Extrapolating from these publications the key is that the incumbent Fortune 500 companies, and many of the top corporations in individual countries, are often 50 to 100 years old and over that period these organisations have grown into such complex bureaucracies that it is impossible for them to re-invent themselves.
This brings me to yet another book I recently reviewed – Summer Players (Zomer Spelers) by Carol Velthuis, in which she analyses the players that are seeing an enormous increase in their value. These include companies such as Google, Amazon, Apple Walt Disney, eBay, Canon, HP and Cisco.
By using totally different and far more effective business models, which are much better aligned with the society and the economy we now live in, they have been able to deliver – at least at a conceptual level – either free or for only a fraction of the cost of similar products delivered by the traditional companies.
This, of course, is going to create massive problems for many of the traditional players, and even focusing just on our industry it is not too difficult to see the values of the traditional media and telco companies further deteriorating, as is predicted by John Seely Brown.
The current discussion around the value of the Australian telco, Telstra, is a case in point. The government having launched its FttH rollout, Telstra is investigating how it can participate and what assets it has that can be used in the new rollout ………
As a starting point, a totally new national FttH network is estimated to cost around A$20 billion. Telstra’s book value is around $40 billion. The assets useable in the new rollout are estimated to be as low as $3 or $4 billion, while Telstra would like to see something like $17-$18 billion. Both these extremes might indeed be just that, but it does paint a picture that fits into the asset meltdown mentioned above.
On top of that, as we have discussed before telcos have been unable to improve their middleware products to deliver a good customer service and maximise their marketing power. Tens of billions of dollars have been spent by individual telcos and so far none of them have got it right, so there is no way these systems can compete with those deployed by the Summer Players, which have cost them less than 10% of what the telcos have spent already.
If we then look at what must be the world’s most messed-up and complex telecommunications system – that of the United States – the future of the American telecom and cable companies within the context of the John Seely Brown analysis is starting to look shaky.
Back to the Fortune 500 companies, a handful of them have been proved capable of bringing the world economy almost to its knees, so let’s hope that lessons have been learned. This mess needs to be cleaned up (don’t fix the broken systems, abandon them and build new ones based on the KIS principle). Or maybe the developing countries, especially China and India, will grow quickly enough to come to the rescue if more of these collapses begin to occur.
Just imagine the rock bottom prices for which those assets will be sold in a situation of collapse!
Another worrying event, and one that I have mentioned several times, is the fact that Rupert Murdoch, one of the world’s most astute business leaders, admitted defeat when he decided that users should pay for the complexity that underpins his complex (read ‘expensive’) organisation that produces content and information – while all around him the old media world is collapsing and the Summer Players are offering similar products at no charge.
The real worry behind his decision is his total inability to come up with an alternative. If Murdoch can’t find one, what hope is there for the other Fortune 500 companies?
Paul Budde
See also:
- Global – Investing in the Communications Revolution
- Global – Economic Crisis – Strategic Developments for Comms during the Crisis
- Global – Economic Crisis – Strategic Vision for Comms after the Crisis
- Global – Fast broadband and Trans-sector policies
- Global – Infrastructure – National Broadband Networks (NBN)
- Global – Infrastructure – National Broadband Rollouts Design and Deployment Strategies
- Global – Infrastructure – Next Generation Telecoms
- Global – Internet – Net Neutrality Analysis
- Global – National Broadband & Trans-sector developments in Australia & New Zealand
- Smart Cities, Buildings & Communities
