About this weblog

What you need to know: This weblog captures key data points about the global telecoms industry. I use it as an electronic notebook to support my work for Pringle Media.

Friday, March 29, 2019

U.S. Telcos Struggle to Cover Cost of Capital

The big four telcos in the U.S. are not exactly raking it in. Between 2010 and 2018, AT&T, Verizon, T-Mobile USA and Sprint achieved an average aggregate return-on-capital employed (ROCE) of just 7%. The NYU Stern School of Business has estimated that the average cost of capital for the U.S. telecoms service sector is 6.9%. In 2018, aggregate ROCE was also 7%.

In other words, the industry is barely covering its cost of capital. Within that overall picture, some telcos are performing better than others. Verizon has been the best long-term performer on this measure, making an average ROCE of 10% across the nine years. T-Mobile USA has made an extraordinary recovery in the past six years, lifting ROCE to almost 10% in 2017 and 2018 from a low of -20% in 2012. But the company’s average annual ROCE for the decade is just 1%, underlining why it is pursuing the merger with Sprint.  Sprint is the weakest of the four, earning almost no return on the capital it has employed across the decade.

AT&T’s average ROCE in the 2010-2018 period is just 7%. The telco’s performance on this metric has been dragged down in recent years by a massive leap in the capital it has employed following the acquisitions of DirecTV and Time Warner.

The chart above is one of many in a high-level guide to the financial state of the U.S.’s top telcos. This new report enables long-term investors and policymakers to easily track the progress of the big four telcos - AT&T, Verizon, T-Mobile USA and Sprint - over the past nine years on a range of financial metrics.

The iPad edition is available here and the Kindle edition here.

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