(B)(N) America Wired

Global Broadband Growth

Drama. In forty years, telecommunications has advanced from bespoke and expensive services at 72 or 110 bits per second (baud) to routinely available services at 10 megabits per second, but we need 100 megabits per second, and Scotty will still not be able to beam us up.

If every American household were willing to spend $30 per month for such a service, the revenue would be about $36 billion per year (100 million households at $360 per year) which is less than the second cup, or the second decimal point in the GDP – but the telecoms are not up to it and they can’t deliver that service for $36 billion per year – and maybe not at any price (Bloomberg, November 10, 2014, Obama’s Internet Rules Could Boost $1.3 Trillion Connected Web).

Say No to Ciudad de Dios in Telephony

The industry is getting a 12% return on its assets and a 40% return on the shareholders equity (44% total return), and seems to like things the way they are – roughly $2,000 per year per American household for a “spotty” and unreliable service that could be wiped out in the next Solar storm, or a passing gamma ray, and what can they do for us if we can’t call home?

It used to be called “oligopoly”, and there are lots of solutions, but the best one is still “competition” and setting up not-for-profit ISPs that are classified as “charitable foundations” in every town and city, for example, will change the landscape for the better – for the much better because these telecoms are not doing their job, and have already said that they don’t want to do the next one (ibid, Bloomberg) – and they don’t light-up the stock market either; please see Exhibit 1 below.

Exhibit 1: (B)(N) America Wired – Fundamentals

Figure 1.1: (B)(N) America Wired – Fundamentals

Figure 1.2: (B)(N) America Wired – Risk Price Chart

The aggregate market value of all ten companies was up +15% in 2012, +22% in 2013, and is off minus (1%) this year; the managed (B)-class portfolio did better and was up +20% in each of 2012 and 2013, and a further +18% this year, although it held only seven of the companies in January and currently has them all; please click on the links (and again to make them larger if required) “(B)(N) America Wired – Prices & Portfolio and Cash Flow Summary” for further details.

Last year, they earned $152 billion and returned 24% of it to the shareholders for a dividend payout of $36 billion and a current dividend yield of 4.2%, helped by lower stock prices.

In contrast, the Dow Utilities earned only $20.2 billion and paid $16.4 billion of it in dividends for a current dividend yield of 2.5% and a return of earnings of 81%; and, similarly, the Dow Transports earned $23 billion and paid $7 billion of it in dividends for a current yield of 1.5% and a return of earnings of 30%.

Consequences?

In aggregate, “telephony” earned three times as much as the Dow Utilities and Transports combined – that’s like magic – but it’s doubtful that there are many people who would say that this industry is doing a good job, and that could have consequences.

For more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

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Disclaimer

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