Monday, January 18, 2021

Telcos are Not Rewarded for Capex at the Same Level as Data Center Operators Making the Same, or Similar Investments

Connectivity service providers typically are not rewarded at the same level as are data center investors, which suggests more retail telcos will have to consider spinning off assets and becoming specialists of various types to be rewarded by financial markets for investing in assets such as data centers or cloud computing assets, according to Bill Barney, Asian Century Equity Chairman. 


In this illustration, where a telco might get a valuation lift of about six to seven times the amount of an investment, a data center operator making the same size investment, in the same sort of asset, might earn a valuation multiple of close to 14 times. 


The highest valuation multiple is earned by a telco for investing in mobile spectrum, at better than 14 times the amount of the investment. 


A data center investment in more capacity or its network gets a valuation multiple of about 13 times, while a cloud computing investment gets a whopping multiple of about 35 times. 


Source: Asian Century Equity 


That suggests a telco would be better served to spin off a data center business unit, for example. On the other hand, telcos get rewarded for optical fiber investments at a bit less than the rate a data center operator gets for making an equivalent networking capital outlay. 


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