Confessions of a Telecom Investor

On TeleGeography Explains the Internet, I typically interview guests who work in the telecom industry or manage telecoms at large enterprises.

Not this week!

Meet Aaron Chan, Founder and Managing Partner at Recurve Capital. As an investor in the “technology media and telecom” space—or “TMT” as they say in finance circles—Aaron has something of an outside perspective.

In this episode, we discuss how investors view the telecom industry and how Aaron classifies publicly traded telecom companies.

My colleagues and I pay close attention to the economic geography of networks, so it was fascinating to hear Aaron's view of the long-term profitability of network operators and what he looks for in making investment decisions in the telecom space.

We also talked about the future of the industry, what might lead to competitive advantage for some companies, and how long that might last.

I hope you learn as much from Aaron's perspective as I did.

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Key Takeaways

The Influence of the Internet

The internet has disrupted application-specific networks (like long-distance voice or video), forcing them to become undifferentiated transport mechanisms where price and cost per unit are the primary drivers.

This commoditization has led to significant price deflation over time, making it a difficult environment for equity investors seeking growth.

Identifying Opportunities

While challenging, potential investment opportunities might exist in areas driven by new demands, particularly from hyperscalers and the need for edge computing. The immense and growing needs of content providers for capacity, geographic and route diversity, and potentially lower latency could create new demand for fiber, wavelengths, or dark fiber, potentially providing new revenue streams for network operators.

There might also be opportunities in providing infrastructure in less traditional or rural locations where hyperscalers are building data centers due to access to power and land. However, capitalizing on these opportunities is complex, partly because hyperscalers may build their own infrastructure and partly because assessing these new trends within complex, traditional telecom company structures can be difficult for investors.