Investment and value extraction in the telecom sector: a comparison of four categories of firms

The basis for growth in the digital ecosystem depends on both capital spending and investment in R&D. In addition to evolving technological, competitive and market dynamics, it is proposed that the financial dynamics of the ecosystem are evolving in a way that may have an influence on future investment capabilities of the sector as a whole. A financial database of the twenty firms representing the top five firms in four categories of the industry was constructed and the developments in their investment practices are compared to their dividend and share repurchasing practices. The top two smartphone suppliers, the leading operator and one of the leading equipment suppliers were found to be extracting value to a greater degree than in the past. Shareholder influence is suggested as the key influence driving these corporate decisions. While the trend is dominated by US firms, it also has a growing impact on non-US firms that have US shareholders. In addition, the influence of US firms is likely to increase with the growth in revenues of OTT companies, almost all of whom are American. This trend has potentially significant consequences for the sector's ability to build innovative capabilities and to continue to contribute to general welfare through employment and tax payments. Further detailed quantitatitve and qualitative research is needed to understand all the implications and such work should also investigate the potential links between value extraction and executive remuneration.