Telecoms may be sitting on a pile of untapped value

Vertical integration, the dominant business model for telecoms, may be holding many companies in the industry back from realising their full value, according to recent PwC research. The chart above shows the dramatic disparity in valuation multiples applied to the different types of business assets and activities making up a typical carrier. Vertically integrated operators skew toward the end of the valuation spectrum typically occupied by “asset-light” retail companies. But many telecoms own and operate significant fixed-asset infrastructure like cell towers and fibre-optic networks, while also offering consumer media services. Investors recognise that running such vastly different types of operations under a single leadership structure creates inefficiencies and dilutes executives’ focus—maintaining capital-intensive network infrastructure requires quite a different skill set than, say, managing a subscription content service. As a result, investors often apply a ‘conglomerate discount’ to telecoms. 

No surprise, then, that CEOs in the telecom sector are pessimistic about their company’s prospects. Fifty-two percent of those polled in PwC’s 27th Annual Global CEO Survey believe their business won’t be economically viable a decade from now if it continues on its current path—that’s seven percentage points more than overall respondents. 

Those findings point to an urgent set of reinvention imperatives for telecom CEOs, who should consider optimising and potentially separating the distinct business layers of their company. By delayering, they can sharpen leadership focus on the primary sources of value, provide greater clarity on strategy and better align their business with the priorities of investors and strategic partners. 

For CEOs, disaggregation starts with a clear view of the businesses they’re engaged in: their boundaries, objectives, resources and assets. That clarity will help leadership teams create self-sufficient units that are centred around a well-defined business purpose and rely on a few coherently aligned performance metrics. Leaders should also look to M&A, carve-outs and other deal-making strategies, which can monetise value, optimise capitalisation, bring units to best-owner/next-level scale, and position the organisation for growth and value creation.