What it means
Technology covers software, hardware and IT services. Media covers publishing, broadcasting, film, music, advertising and digital content, while communications covers telecoms operators, cable and broadband providers, and the infrastructure that carries data.
Boundaries between them are set by industry classification systems and differ from one provider to another. The three used to be separate, but digital delivery has blurred the lines.
Phone companies now sell video, media companies run their own streaming apps, and technology companies fund content and build networks, so deals often cross traditional boundaries. Customers now expect content, connectivity and software to work together on every device.
Investment banks and consulting firms usually group these industries into one coverage team because the same buyers and sellers appear across all three. A merger between a telecoms operator and a media group, for instance, needs expertise in both areas.
Clients also benefit because one team can advise on both the strategy and the financing of a cross-sector deal. The financial characteristics differ within the group.
Telecoms are capital-intensive and use heavy debt to build networks, media businesses depend on advertising and subscriptions and on hit content, and technology companies spend on research and often grow faster. Common measures vary accordingly.
Telecoms track average revenue per user and customer churn, media companies look at subscribers, audience and advertising yield, and software firms examine recurring revenue and growth. Using the right measure for each part avoids misleading comparisons.
The sector is shaped by regulation, particularly on competition, data privacy and spectrum licences, which are the rights to use radio frequencies. Investors therefore watch regulators as closely as they watch earnings.
A deal that looks attractive on paper can fail if regulators decide it would reduce competition too much.
In practice
Real-world examples.
Example
An investment bank advises a broadband provider on buying a regional television network. The deal brings in content that the provider can offer to its internet customers. The adviser values the target using subscriber numbers and advertising revenue, and tests the deal against competition rules.
Example
A private equity fund buys a portfolio of radio stations and a digital advertising agency. It plans to cut costs by sharing sales teams and to use data to sell advertising more effectively. Combining the businesses allows the fund to sell larger, packaged campaigns to advertisers.
Example
A software company partners with a telecoms operator to sell a business app to the operator's corporate customers. The operator adds a new revenue stream without developing the product itself. The software company gains access to thousands of customers it could not otherwise reach quickly.
Formula
Calculation
Average revenue per user (ARPU) = Total revenue / Average number of subscribers
A mobile operator earns $60,000,000 in a month from 2,000,000 subscribers. ARPU is $60,000,000 / 2,000,000 = $30 per user per month. If the operator raises prices and ARPU rises to $31.50 with the same subscriber base, monthly revenue becomes $31.50 x 2,000,000 = $63,000,000, an extra $3,000,000.Case study
Seen in the real world.
Skyline Connect is an illustrative, fictional telecoms operator that wanted to reduce customer churn. Its finance team found that subscribers who also used its bundled video app left at half the rate of those who did not.
The company bought a small streaming business for $90,000,000 and added it to every contract. Within two years churn dropped from 1.8% to 1.3% a month, and ARPU rose by $2.
In this fictional story, the deal turned out well because management understood both the telecoms and media economics. The case shows why advisers treat the sectors together. Skyline's chief financial officer noted that the acquisition price was justified only because churn fell; had it stayed flat, the return would have been far weaker. She now tracks churn monthly as a headline measure for the board.
Watch out
Common mistakes.
- Treating the three parts as one business, when their margins, capital needs and risks differ widely. Investors should compare each part against its own peers.
- Ignoring regulation, which can block deals or change prices. Spectrum licences and merger reviews can take many months.
- Valuing a media company on the same measures as a telecoms company without adjusting for different economics. Telecoms assets need heavy spending, while content businesses depend on hits and subscriptions.
Questions
People also ask.
Why are technology, media and communications grouped together?
Because digital delivery has made them overlap, and many companies and deals now span two or all three areas.
What is ARPU?
Average revenue per user is total revenue divided by the average number of subscribers, and telecoms and streaming companies use it to measure pricing and growth.
What is churn?
Churn is the percentage of customers who leave in a period, and lowering it is often cheaper than winning new customers.
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