Research Notes

Highlights from Strand Consult’s exclusive call with financial analysts of the telecom and cable industries

On February 17 Strand Consult launched the first of a series of exclusive conference call for financial analysts of the telecom and cable industry. On the call we discussed the possible changes in US telecom policy and the likely impact on telecom operators in US and around the World. The goal of the call was to lift analysts’ knowledge level of how the various policy and regulatory measures affect telecom operators’ willingness to invest and profit in the future. This will help financial analysts be more informed when they interview the companies they cover. Following are some of the research notes that inform our conclusions.

We provided our assessment of the three key drivers we see going forward in the order of their importance:

1. Tax reform (depending on what form it takes)
2. Mergers (whether they are allowed and under what conditions).
3. Regulatory modernization.

The new Republican government has prioritized tax reform and regulatory modernization.  We believe the new President will respect the independence of the Federal Communications Commission and Federal Trade Commission, and changes, such as a greater respect for process and evidenced-based decision making, will be the likely be result of new agency leadership and Congress. We observed how the FCC used its public interest authority to extract merger conditions in the Obama years and don’t expect to see that kind of exploitation under the new FCC chairman. We also advised our audience to consume news media with a grain of salt.

We see the US moving in a positive direction with regard to the industry while the EU will continue to stagnate. Brussels believes that more regulation will stimulate investment and innovation, even though this policy has failed miserably for the last two decades. Unfortunately Brussels uses the new American president as a distraction from its own problems.

In other parts of the world, especially in Latin America, politicians and regulators have the opportunity to observe the two paths, American and European.  The United States has had significantly more investment and innovation than Europe in the last two decades. We believe that many governments and regulators in Latin America will recognize the failing of the European way. Indeed we see a number of regulators in Latin American countries implementing some measure of evidenced-based methodology.

Here are some links to a number of research notes that explain the points in longer detail and how we describe how regulation impacts the telecom industry. 

Strand Consult observes a gulf between the financial community and officials within the telecom operation in how they understand and assess the impact of regulation. Those in the functions of investor relations, public affairs, and senior leadership have different perspectives and financial analysts may get different stories depending on to whom they talk. There are also cultural differences between operators. For example American operators are more inclined to sue authorities over disagreements whereas in the EU, this happens to a lesser degree.  Strand Consult will in the future help financial analysts gather these multiple perspectives to get the full picture of the role of regulation.  

Over the last few years, financial analysts have grown increasingly interested in telecom operators’ regulatory challenges. It is clear that they see how regulation will impact an operator’s ability to invest and its profitability for shareholders. Financial analysts desire to know more about this area, ask critical questions, and improve their assessments for investors. Moreover financial analysts take a greater role in communicating their views to governments, particularly as they see how regulation impacts investments and their likelihood to invest in a given country.

If you are a telecom operator and would like more information about how regulation impacts the industry, contact us and learn about our Executive workshops for Top Management and Board Members in the mobile and telecom industry.

Best regards

John Strand
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