Where Is The Value That Telcos Help Create?

Source: Bloomberg and Google Finance

Telecom operators are at a defining moment. Despite being the backbone of the digital economy—powering everything from streaming platforms to cloud computing—telcos are struggling to capture the very value they enable. Meanwhile, global internet giants are racing ahead, both in revenue growth and market valuation. The irony couldn’t be starker: these digital businesses wouldn’t exist without the infrastructure telcos provide.

Mind The Gap: Rethinking Value And Growth In The Telco Sector

Consider this: the top 10 global internet companies generate roughly twice the revenue of the top 10 global telcos. But the real gulf is in valuation. Internet giants command a combined market capitalization 14 times larger than their telecom counterparts. Their average price-to-sales ratio hovers around 9x, compared to just 1x for telcos. The investor message is blunt—growth, innovation, and value creation are expected from tech players, not traditional telecom operators.

Yet, this isn’t a story of inevitable decline. A few telcos have proven that outperformance is possible. T-Mobile US and Finland’s Elisa have price-to-sales multiples of 3.2x and 3.5x, respectively—clear evidence that when telcos pair operational excellence with visionary strategy, they can break free from sector norms and command a premium.

The Dividend Trap and a Shifting Financial Reality

For most operators, however, the response to sluggish top-line growth has been defensive. The dominant narrative has become the “dividend pitch”—enticing investors with high yields while innovation takes a back seat. However, as financial conditions shift, this strategy is fraying.

Return on invested capital (ROIC) is eroding. McKinsey notes a 10–15% drop across North America and Europe between 2018 and 2022, while BCG reports a fall in median ROIC from 8% in 2023 to 6.7% in 2024. Rising interest rates have pushed the weighted average cost of capital (WACC) up from 5.4% in 2020 to 7.1% in 2024, meaning many telcos are failing to cover their cost of capital, destroying shareholder value rather than creating it.

Moreover, most free cash flow is locked into capex, debt servicing, and dividend commitments, leaving little room for bold, strategic bets. The clear imperative: raising ROIC must become the top priority. This will require more than cost-cutting—it demands new growth engines, smarter monetization of network assets, and a redefined customer value proposition.

Telco Winners Rethink Value Creation

The message to telco leaders is unmistakable: incremental change is no longer enough. The winners of the next decades will be those who focus: either shift to being a modern network infrastructure provider (NetCo) or become true digital enablers (ServCo). Both models depend on agility, ambition, and customer-centric innovation (TechCo).

As part of the SITSI research program, I will publish a series of reports exploring the technical, operational, and cultural shifts required to narrow the telco-to-digital provider valuation gap. From agile operating models and organizational redesign to customer journey reinvention and service simplification, our goal is to show how telcos can not only compete on ROIC but thrive in a future where connectivity is the platform for growth.

• The Future Of Telecoms 2030
• Choose The Right Telco Business Model
• Growth Opportunities In The Telco Sector
• Network Infrastructure Evolution Opens New Value Propositions
• Embrace The Opportunities Of Network API Monetization
• Embrace AI In The Telco Context

Please contact me (d.bieler@pacanalyst.com) if you want to discuss any of these themes or contribute to the research.