Product and Customer "Who, What, Where, When, Why" is Evolving

What you sell matters. How you sell it also often matters. Who you sell it to, and where you sell it, also matters. How much you sell always matters. What it costs you to sell those items also always matters.

The rise of digital infrastructure partly raises the issue of how best to organize the production and sale of internet access and other connectivity products, as cloud computing has changed the way we think about how to procure and supply computing and applications.

To a greater extent than ever, asset owners and analysts evaluate the merits of asset-light or asset-lighter approaches. That changes the answers to the questions of what, who, where, when, why products get sold, as well as how much and how profitably.

Access providers tend to have operating margin valuation multiples as much as three times lower than infrastructure-only providers such as tower companies. 

Several aspects seem to account for the disparities. Tower companies sell to all competitors in a market, and therefore are viewed as representing less risk, as the tower companies can theoretically address nearly 100 percent of the market.

No single retail telco or internet service provider ever can claim to acquire as customers more than a fraction of the total market. Additionally, tower companies sell multi-year contracts, often with price escalator clauses to protect against inflation. 

That offers the sort of cash flow predictability that investors value in utility type businesses ranging from electrical and natural gas retailers to airports and toll roads. Also, cell tower assets offer some protection against unrestrained new competition. 

source: Deloitte 

Data center assets also are viewed as having similar characteristics, though perhaps with less moat protection, as, in principle, additional data centers can be built at the same locations. 

Still, there are but a handful of hyperscalers who are potential data center tenants, so there are some moats in that regard. But the total range of enterprise and business tenants is far broader. 

While additional cell towers can be built at similar locations, the number of potential tenants is more limited, as there might be only a handful of potential tenants. 

For such reasons, data center assets might show a broader range of valuations, but still be much higher than EBITDA valuations for access providers. 

source: Oliver Wyman