DUBLIN – In the morning keynote panel kicking off the TM Forum’s Management World 2012 event, financial analysts joined the TM Forum’s executive leadership to discuss what factors will determine the “winners and losers” in the digital world. Specifically, the questions to the panel tried to uncover drivers that the financial community looks for as they evaluate investments in telecom service providers.
Kicking off a generally glum view of the future of operators as value creation engines, Hannes Wittig, Managing Director for equity research at JP Morgan Chase, commented that, “In European Telecoms we are seeing a straightforward decline. Operators are focused on cost cutting and managing decline while hoping something comes up that is new.” He added that while hedge funds are willing to support investments into this market, the opportunities are few due to regulatory constraints that dampen the incentive to innovate, the high technological risk inherent in developing new services and the high consumer risk due to latency of demand.
Lawrence Sugarman, Head of Telecoms at Liberum Capital continued the financial pile-on by indicating that a key decision criteria for investors is to, “understand what companies are doing in the short term, but also identify at an early stage which companies have a long-term vision. Investors are willing to back companies that demonstrate that vision. The problem is that it has been very difficult for operators to demonstrate that vision. That is a harsh reality, but it is what drives value.” Like Wittig, Sugarman cited the regulatory environment as a key impediment to an operators’ ability to demonstrate the vision.
TM Forum Chairman Keith Willets commented that a vicious circle exists between large service providers – and large companies in general – and the financial market where it is difficult for a big company to innovate due to the need to produce expected earnings results regardless of surrounding business circumstances. Willets pointed to Telefonica’s initiative to carve out Telefonica Digital as a possible remedy.
However, Wittig responded by saying that Telefonica’s share price does not reflect interest on the part of investors in its efforts surrounding its Telefonica Digital efforts. “We just don’t care. Doing things that are outside your core competencies is an outlandish way of driving financial value.”
Bottom Line
Although the thoughts of the financial analysts on the show’s kick off keynote panel did not necessarily tell the audience anything that it did not already suspect, it does reinforce the feeling in the industry that the investment community is as much of a gating factor in stimulating growth as technology and/or competitive issues. To be fair, capital markets only work by investing in growth opportunities. If operators cannot produce that growth, the simple fact is that they will not attract investment. While the TM Forum’s Catalyst program is designed to help the industry solve technical problems, perhaps efforts directed at a “financial catalyst” could be a role that influential industry organizations could play going forward.
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