Hacker News Reader

Comment by rayiner | Hacker News Reader

> This sounds like a canard. If by "regulate more" you mean the available profit margins are smaller, then yes. However, if profit margins are very high, you can place quite a lot of expensive regulation (not all regulations are expensive, some of them tell you not to do injurious things) and people will still invest.

But they're not. The telecom industry as a whole has among the lowest returns on investment of any industry: http://www.mckinsey.com/business-functions/strategy-and-corp....

The idea that telcos are "very rich" is an alternative fact. Look at the actual operating profit margins of the wireline divisions of the big telcos. Huge amounts of money comes in, and almost all of it goes right back out because maintaining physical wires is expensive.

View on HN

Wireline has been on the decline for a while now though, why would you look at that alone?

And a high ROIC is.., odd when comparing it to industries like software, or even to F&B.

And if those numbers are American numbers, it's pretty amazing, given that American telcos have historically underinvested in their infra building duties.

What's more interesting is an ARPU comparison with multiple countries. That would be a more apples to apples comparison.

For reference: AT&T 2015 net income was 13 billion.

Because we're talking about the Internet, which is fundamentally a wireline network?

Which isn't the only source of revenue for these firms, since we are talking about the whole firm.

Even if we did want to talk about just wireline, you would still have to do an ARPU comparison and see how other nations do. The last time I had to analyze a telecom firm was many years ago, but American firms do very well.

Edit: ended up finding a decent primer for the America telecom industry.

Telecos are a weird example. They're more like a utility than a product one can live without. This, combined with the massive duplication of effort competition would entail, is the reason why they are so intensively regulated. Oftentimes the government provides funding & loans[1][2], and tax incentives for telecom infrastructure buildout.

For what its worth, the reason telecoms have such low margins is that they are a commodity (which in my opinion, is what they should be). Their lobbying to get the ability to give non-neutral lanes is to give themselves a way to not be a commodity. I don't really see the upside for society as a whole for them to be essentially granted a state monopoly and then decommodify themselves to make things that were cheap more expensive and risk the internet in the process.

Their profits are nearly risk free even if they're relatively low. According to your link, the average return was between ~2% and ~11%. We're not talking about fractional percentages here. A small low risk margin on a lot of money... is still a lot of money. Notice that the ROIC in exhibit 3 lines up nicely with utilities.

I'm not sure where you were getting your info from about wireline divisions, but I found this interesting report: http://marketrealist.com/2015/01/wireless-telecoms-key-indic... It looks like investment in wires has declined by about 40%, but investment in wireless has increased tremendously. I don't know what the absolute numbers are though. I imagine wireless is much cheaper to deploy.

[1] Government funding of rural infrastructure - https://www.usda.gov/wps/portal/usda/usdahome?contentidonly=... [2] Government funding of certain consumer uses (which is free money for the telecos) - http://www.gillibrand.senate.gov/imo/media/doc/Gillibrand%20...

The utility analogy is superficially attractive but makes no economic sense. Utilities have far lower investment needs and stable rather than exploding demand. Also, even then our utilities are massively underfunded. Regulated rates are just too low, resulting in aging water and sewer pipes and transmission lines. Our power grid is crumbling: http://abcnews.go.com/US/story?id=90321. Our ancient sewer systems are dumping raw sewage into our waterways every time it rains. Old lead pipes are poisoning our kids.

The government funding you point to is a drop in the bucket compared to the costs imposed on the industry. The USF tax is $8 billion per year. State and local governments levy $6 billion in franchise fees annually (for a franchise that is by law non-exclusive). Your report points to a few hundred million in one time payments here and there. Also, remember that those payments are against the background of a universal service obligation. The government can legally prevent a telecom from exiting an unprofitable market. They may or may not provide some subsidy, but the obligation to provide service isn't contingent on getting a subsidy.

ehh well they are rich in that they own actual infrastructure, not just say a digital infrastructure. They often own content networks and of course plenty of IP, so they do fine. When you see telecom failing it's generally them letting themselves get raped due to contracts that serve people internally that they've enjoyed passing off to their customers without care.

Reply on news.ycombinator.com