The telecoms sector used to be attractive – high growth, low competition, wide economic moats, a generally favourable regulatory environment and strong cash flow with moderate capex allowing for generous and safe dividends. They were solid utility stocks: investments to buy, hold and forget. How, then, has this sector, and BT (BT.A) in particular, shown such poor total shareholder returns (TSR) and typically substantial capital losses over the medium term?
Answer: the rapid pace of change has left these once large and dominant businesses struggling to keep up and facing ever larger and shorter re-investment cycles. Big-name telcos should have been best placed to harness the explosive growth in communications, but instead they were hobbled by their scale and often monopolistic positions that in fact allowed others to use their dominance and built-out network infrastructure to their advantage, and at the expense of the large telcos.
The money from the data and media explosions ended up almost exclusively being made by others. On top of that, as a basic utility sector, regulation has often dictated pricing, policy and investment cycles – less than in the water and energy sectors, but still enough to stifle ambition. Competition is also much more acute than for other utility sectors.