Betting on the future

The dog days of summer appear to be with us still...  And,finding so little UK news of interest, I’ve yet again been forced to look to the US for inspiration.  The problem there is that so much of the useful editorial comes laden with large dollops of political lobbying – probably more so than on this side of the Atlantic.  But sometimes the propaganda can itself be enlightening, and what soon caught my eye was the report recently compiled by the Progressive Policy Institute (PPI) on its ‘US Investment Heroes of 2014’. 

In its third year of publication, this report focuses on identifying the U.S.-based corporations with the highest levels of domestic capital expenditure.  The authors, Diana Carew and Dr Michael Mandel, hope that their listing “can help inform good policy for encouraging continued and renewed investment domestically.”  Well, Amen to all that but first, here’s the Top-10 from the latest spending list (excluding energy companies):

 

RANK	COMPANY	EST. 2013 US CAPEX ($m)
1	AT&T	20,944
2	Verizon	15,444
3	Walmart	8,652
4	Intel	8,442
5	Comcast	6,596
6	Google	4,697
7	General Motors	4,591
8	Apple	3,807
9	Union Pacific	3,496
10	Ford Motor	3,392

 

The top Investment Heroes of 2014 actually look very similar to those of last year.  The continued strength of domestic investment by telecommunications and cable companies remains very clear: together, telecom and cable companies recorded $46bn of domestic CAPEX, just over 30% of the US total.  Within the sector, AT&T, which has invested significantly in expanding its U-verse fibre optic network, has remained top spender in all three annual reports.  Similarly, Verizon has focused its investment on building out its 4G LTE wireless network, and remains in the runner-up spot.  Comcast moves up from being in the 10th spot last year to ranking 7th this year, on the strength of investment in its X1 cable platform equipment, wireless gateways, and network capacity.

 

It’s hard to scope UK comparisons against these figures – given huge differences in addressable markets, the technology used, accounting conventions and so on.  Nonetheless, according to a learned colleague, writing earlier this year, BT's infrastructure spend has been running at about $1.86 billion (£1.15bn) a year, out of total CAPEX (including non-UK) of $4bn.  Using a very broad brush, and similar methodology to the PPI Report, we might end up with relevant domestic CAPEX of $2.5-3bn annually.  For the dominant UK player, that seems rather lightweight against AT&T’s $21bn.  On the other hand, the BT figure excludes a sizeable chunk of government (BDUK) subsidy  Indeed, some UK commentators - and I include myself in this group - have seen the existence of these government funds as a basis for criticising BT for not investing more from its own resources.  At any rate, we tend to see such private sector spending as being a predictable response to a rational business case.  That attitude contrasts sharply with that of the authors of the PPI Report, who firmly believe that the maintenance of discretionary investment merits some species of ‘compensation’ through government or regulatory concessions of some kind.  The Report dwells on these incentive measures at some length but they can essentially be summed up in biblical terms, i.e. 

 

 

The Eight US Commandments*: (* Per PPI Report)
1	First, investment heroes should be commended publicly for their willingness to ‘bet on the nation’s future’
2	Policymakers must be aware that all regulations impact on investment appetite – so take care!
3	The unintentional accumulation of past regulations can also impede investment flow so keep these constantly under review
	(For the FCC)
4	Ensure the next spectrum auction proceeds as scheduled in mid-2015.
5	IP-transition trials must form part of a gradual, complete transition to new network technology
6	Local governments should be deterred from deploying their own broadband networks.
7	Utility-style, ‘Title II’ regulation of the internet must be avoided
8	New data privacy measures could also adversely affect the investment climate.

 

It’s easy enough to scoff at such a daunting ‘shopping list’ but it might actually provide some clues for UK policy.  As we continue to seek private sector investment in sustainable (fibre-based) broadband networks, perhaps the UK will have to accept that commitment to such investment may well require some form of regulatory incentive – probably not the generic concessions suggested in the above ‘Commandments’  but possibly some form of franchising or geographic exclusivity.  After all, we desperately need more ‘heroes’.