The Telecommunications Industry Decentralisation Model: Unbundling for the Digital Age

The telecommunications sector continues its shift towards decentralisation, driven by market pressures, technological advancements, and evolving customer expectations. This strategic unbundling is reshaping traditional telecom operators into specialised, agile entities, aligning with the broader economic principle of oscillating between consolidation and disaggregation to optimise value and innovation.

The "Why" Behind Decentralisation:

• Stagnant Core Revenue Streams: Traditional voice and data services face ongoing commoditisation, with average revenue per user (ARPU) under pressure. Telcos are seeking new revenue streams, such as digital services and enterprise solutions, to drive growth.
• Intensified Competition: Digital-native firms, including hyperscalers (e.g., AWS, Google Cloud) and software-driven competitors, continue to challenge telcos in value-added services like cloud, IoT, and cybersecurity.
• Technological Imperatives: The expansion of 6G research, advanced AI integration, quantum communication exploration, and the growth of edge computing require specialised expertise and targeted investments, which are difficult to manage within a monolithic structure.
• Evolving Customer Expectations: Customers demand hyper-personalised, seamless, and sustainable digital experiences, pushing telcos to adopt agile, customer-centric models.

Decentralisation allows telcos to unlock value, sharpen focus, attract specialised capital, and accelerate innovation in a competitive digital landscape.

Why Telcos are Decentralising

The Origin: Riding the "Double Helix" of Industry Evolution:

Charles Fine’s "Double Helix" model, from Clockspeed: Winning Industry Control in the Age of Temporary Advantage, remains a foundational lens for understanding this shift. Industries cycle between vertical integration and disaggregation based on the "clockspeed" of technology and market demands. The telecom sector, once dominated by vertically integrated monopolies, is now driven towards specialisation by rapid advancements in 6G, AI, cloud-native architectures, and dynamic customer needs. This disaggregation enables each entity to focus on core competencies, attract tailored investment, and foster innovation.

The Double Helix View

How Decentralisation Impacts Structure: The Emergence of Specialised "X-Co" Entities

The decentralised telecom model splits traditional operators into distinct entities, each with a clear focus:

Infra Co (Infrastructure Company) Core Business Focus: Owns and operates passive infrastructure (e.g., towers, fibre networks, ducts, data centres), providing wholesale services.

• Strategic Role: The foundational enabler, offering stable, long-term cash flows through high capital expenditure (CapEx) assets.
• Investor Appeal: Attracts long-term institutional investors (e.g., pension or superannuation funds, infrastructure funds) seeking predictable, utility-like returns.
• In 2025: The rise of AI-driven workloads has increased demand for data centres, making InfraCos critical for edge computing and low-latency applications. Many are exploring sustainable energy solutions to meet environmental, social, and governance (ESG) criteria, enhancing investor appeal.

Net Co (Network Company) Core Business Focus: Manages active network layers, including spectrum, radio access networks (RAN), and Network-as-a-Service (NaaS) platforms with open APIs.

• Strategic Role: The intelligent platform layer, enabling network slicing, quality-of-service (QoS) management, and automation.
• Investor Appeal: Appeals to investors interested in next-generation network technologies and digital transformation.
• In 2025: Net Cos are increasingly adopting software-defined networking (SDN) and network function virtualisation (NFV) to support 6G trials and AI-optimised networks. Open RAN adoption is accelerating, reducing dependency on traditional vendors like Nokia or Ericsson.

Serve Co (Service Company) Core Business Focus: Delivers customer-facing services (e.g., broadband, mobile, IoT) and digital offerings (e.g., cloud, cybersecurity, managed IT).

• Strategic Role: The customer-centric engine, driving revenue through brand loyalty and innovative service bundles.
• Investor Appeal: Attracts growth equity and private equity seeking recurring revenue and market share.
• In 2025, Serve Cos are expanding into enterprise-focused solutions, such as private 5G/6G networks and AI-driven analytics platforms, to cater to industries like manufacturing and healthcare. Customer experience platforms now leverage generative AI for hyper-personalisation.

Tech Co (Technology Company) Core Business Focus: Drives R&D in AI, machine learning, cloud-native applications, API marketplaces, and data monetisation.

• Strategic Role: The innovation engine, creating new revenue streams and enhancing ecosystem capabilities.Investor
• Appeal: Attracts venture capital and tech-focused investors seeking high-growth opportunities.
• In 2025: Tech Cos are pioneering AI-driven network optimisation, quantum encryption, and Web3 applications (e.g., blockchain-based identity solutions). Partnerships with hyperscalers and startups are accelerating innovation cycles.

Decentralised Structure - Business View

Detailed Comparison of Each Decentralised Model ("Co")

Decentralised Components Attribute Comparison

Benefits of Decentralisation

The decentralisation model continues to deliver significant benefits:

Financial Benefits:

• Higher Valuations: Infra Cos achieve EBITDA multiples of 15-25x, compared to 6-8x for integrated telcos, unlocking 30-50% valuation uplifts.
• Cheaper Capital: Infra Cos secure low-cost debt, while Tech Cos attract high-growth equity.Improved
• Capital Allocation: Targeted investments enhance ROI, with CapEx efficiency improving by 20-30% in some cases.

Operational Benefits:

• Focus & Agility: Specialised entities reduce bureaucracy, enabling faster decision-making.
• Efficiency: Streamlined operations improve cost structures by 10-15%.
• Talent Specialisation: Attracts niche expertise, enhancing performance.

Regulatory Benefits:

• Relief & Clarity: Open-access Infra Cos simplify compliance with wholesale regulations.
• Compliance Simplification: Specialised entities streamline regulatory adherence.

Innovation Benefits:

• Accelerated Innovation: Tech Cos drive AI, 6G, and quantum advancements, competing with digital natives.
• Asset Monetisation: NaaS and edge computing create new revenue streams, with some Tech Cos reporting 20%+ growth in digital revenues.
• Ecosystem Enablement: Partnerships with hyperscalers and startups foster vibrant ecosystems.

Global Impact: Companies Embracing Decentralisation

Europe:

• Vodafone: Vantage Towers has expanded its footprint, acquiring additional sites in Eastern Europe and securing green energy partnerships to meet ESG goals. Vodafone is now exploring a Fibre Co spin-off in Spain and Italy, aiming to raise £5-7 Bn by 2026.
• Telefónica: Post-Telxius tower sale, Telefónica has launched a FibreCo in Spain, targeting 5 Mn additional FTTH premises by 2027, with co-investment from infrastructure funds.
• Deutsche Telekom: GD Towers has grown its tenancy ratio to 1.8, generating €1.2 Bn in annual revenue. DT is investing heavily in AI-driven network automation and enterprise 5G solutions.

APAC:

• Indosat Ooredoo Hutchison (Indonesia): Has divested additional tower assets in 2024, raising $500 Mn to fund 6G trials and rural 5G expansion.
• Axiata (Malaysia): edotco Group secured $300 Mn in new funding in 2025, expanding into Vietnam and Bangladesh, with a focus on edge data centres.

Australia & New Zealand:

• Telstra (Australia): Amplitel’s tenancy ratio reached 2.0 in 2025, generating $400 Mn in annual lease revenue. Telstra is exploring a FibreCo model to fund rural broadband expansion. Telstra hasn't disaggregated Tech Co and Net Co from Serve Co; however, Muru-D is their Innovation hub.
• Optus (Singtel-owned, Australia): Optus has embraced decentralisation through its network-sharing agreement with TPG Telecom (2024), expanding coverage to 2,444 regional sites, including 5G, while reducing Capex by A$575-675 Mn. This aligns with the Net Co model, leveraging shared infrastructure for efficiency. Optus retains its Serve Co focus, enhancing customer-facing services like private 5G for enterprises.
• Spark (New Zealand): Connexa secured additional funding in 2024, enabling 5G tower densification. Spark’s focus on AI-driven customer analytics has boosted ARPU by 8%.

Telstra's Peer comparison on CapEx and FCF

United States:

• AT&T & Verizon: Both continue to monetise fibre assets, with AT&T’s Fibre Co valued at $15 Bn in a 2024 joint venture. Investments in private 5G and AI-driven enterprise solutions are accelerating, with Verizon reporting 10% growth in enterprise revenues.

India:

• Bharti Airtel & Indus Towers: Indus Towers expanded its portfolio to 200,000 sites by 2025, with a tenancy ratio of 2.2. Airtel is leveraging proceeds for 6G R&D and enterprise IoT solutions.
• Reliance Jio: Jio Platforms raised $2 Bn in 2024 from new tech investors, focusing on AI, quantum communication, and Web3 applications, valuing the entity at $120 Bn.

Impact on Balance Sheets

• Debt Reduction: Tower and fibre sales have reduced debt-to-EBITDA ratios by 0.5-1.0x for major telcos like Vodafone and Telefónica.
• CapEx Reduction: Serve Cos and Tech Cos now allocate 20-30% less CapEx, with Infra Cos and Net Cos absorbing network build costs.
• Free Cash Flow: Improved by 15-25% due to lower CapEx and interest expenses.
• Valuations: Sum-of-the-parts valuations continue to outperform integrated models, with InfraCos commanding 15-20x EBITDA multiples.
• Strategic Flexibility: Enhanced cash flows enable M&A, 6G investments, and digital service expansion.

Conclusion

The decentralisation model remains a critical strategy for telcos navigating the digital age. By unbundling into Infra Co, Net Co, Serve Co, and Tech Co entities, operators can unlock value, enhance agility, and drive innovation. Recent trends, including 6G trials, AI integration, and Envirionmental, Social and Governance (ESG) focused infrastructure, underscore the model’s relevance. However, success depends on strategic execution, talent acquisition, and adapting to evolving market and regulatory dynamics.

To know more about the Australian Telecommunications Industry and its Evolution, please refer to my book titled Australia's NBN Debacle.

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Note on Broader Industry Spin-off Trends (Beyond Telecom)

The trend of corporate spin-offs, driven by the desire to unlock hidden value, streamline operations, and empower business units to pursue independent strategies, is not exclusive to the telecommunications sector. This approach is a universal corporate strategy for value creation, applicable across diverse industries:

• MTN Group: The African telecom giant is considering spinning off its highly successful Mobile Money (MoMo) platform. This move aims to unlock a higher valuation for MoMo as a fintech company, provide strategic clarity for MTN's core telecom business, improve capital allocation, and ensure better alignment with fintech regulations. This illustrates a telco diversifying into a "fintech-co" model.
• Intel: The technology giant is spinning off its Network and Edge Group (NEX) into an independent business unit. This decision reflects Intel's broader strategy to divest non-core operations that compress profit margins and sharpen its focus on strategic growth areas like x86 and AI. This is an example of a tech company applying similar disaggregation principles.

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Note on AI's Impact Across the Decentralised Telco Model

The integration of Artificial Intelligence (AI) is rapidly reshaping telecommunications, driving new services, operational models, and investment opportunities. Within the decentralised telco model – comprising Infra Co, Net Co, Serve Co, and Tech Co. AI presents distinct yet interconnected avenues for growth and transformation.

1. Infra Co: The AI Connectivity and Infrastructure Provider

• Optical Network Expansion (Low Risk): Expanding fibre networks to meet AI's high-bandwidth, low-latency demands. This directly strengthens their primary connectivity offering.
• Optimising Existing Layer 1-2-3 Networks (Medium Risk): Using AI for traffic management, predictive maintenance, and fault detection. Integration complexity introduces medium risk despite core benefits.
• Hosting AI Workloads on Telco DCs and Edge (Medium Risk): Providing compute and storage for AI applications at the network edge. Leverages existing assets, but AI workload requirements create new challenges.

2. Net Co: The Active Network & Platform

• AI-RAN (Medium Risk): AI for cell optimisation, energy efficiency, and spectrum sharing. Critical investment with integration complexity risks.
• NaaS/SD-WAN for AI Workloads (Medium Risk): Network-as-a-Service solutions optimised for AI demands through dynamic slicing. Requires advanced software-defined capabilities.
• AI for Network Automation & Orchestration (Low Risk): Automated network provisioning and self-healing capabilities. High efficiency gains with established technology.
• Data Monetisation from Network Analytics (High Risk): Converting network data into valuable insights for third parties. Privacy and governance concerns create significant risk.

3. Serve Co: The Customer-Centric Service Provider

• B2B/B2C AI-enabled Services (Low Risk): AI chatbots, personalised marketing, proactive customer care, and digital channel optimisation. Directly impacts customer satisfaction and retention with mature AI tools.
• AI for Churn Prediction & Retention (Low Risk): AI models analyse customer data to identify at-risk customers for targeted retention strategies. Critical for maintaining revenue streams.
• Sales & Lead Qualification (Low Risk): AI prioritises leads, identifies cross-sell opportunities, and automates sales processes. Makes sales teams significantly more efficient.
• Market Research & Product Development (Medium Risk): AI analyses market data and customer feedback to identify trends and inform new product development. Enables strategic innovation with moderate complexity.

4. Tech Co: The AI Company

• NaaS/SD-WAN for AI Workloads (Medium Risk): Creating software-defined platforms optimised for AI traffic. Market adoption uncertainty creates moderate risk.
• GPUaaS/AIaaS (High Risk): Developing underlying AI platforms and orchestration systems. Intense competition in AI platform space.
• B2B/B2C AI-enabled Services (Medium Risk): Creating foundational AI technologies for Serve Co integration. Contributes to the overall service portfolio.
• AI Technology (High Risk): Deep R&D into AI data centres, chips, LLMs, and intelligent agents. High-risk, high-reward investments define future capabilities.

Strategic Benefits of Decentralisation for AI

• Specialised Expertise: Each entity builds AI teams tailored to their specific functions and requirements.
• Optimised Capital Allocation: Investment directed to AI opportunities aligned with each entity's core business and risk appetite.
• Faster Time-to-Market: Decentralised structure enables rapid AI solution development within respective domains.
• New Revenue Streams: AI enables AIaaS, GPUaaS, and specialised enterprise solutions beyond traditional connectivity.
• Operational Efficiency: AI drives efficiencies from predictive maintenance (Infra Co) to automated customer support (Serve Co).

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Source and References: Seekingalpha, Stlpartners, McKinsey, BCG, Deloitte, Strategy & CO TMforum, Gartner, WSJ, Bloomberg, AFR, Nextplatform, Gemini, Chatgpt, Claude, my Blog

Lessons from the Brink: Comparing Three Defining Economic Crises of 2008, 2020 and 2025

Comparing Three Defining Economic Crises of 2008, 2020 and 2025

Analysis and Insights

Nature and Triggers: Distinct Origins

• 2008 Global Financial Crisis (GFC): A systemic financial failure rooted in over-leveraged institutions and subprime mortgage defaults, leading to a credit freeze. The trigger was the collapse of Lehman Brothers (September 2008), exposing the fragility of the financial system.
• 2020 COVID-19 Crisis: A health-driven economic shock caused by a global pandemic, resulting in widespread business closures and supply chain disruptions. The trigger was the discovery of significant COVID-19 cases in Italy (February 2020), signalling its global reach and severity.
• 2025 Tariff Crisis (In Process): A policy-induced trade disruption stemming from newly imposed tariffs, leading to global trade barriers and economic uncertainty. The trigger was the announcement of Trump Tariffs (April 2025), initiating a wave of trade policy changes and retaliatory actions.

Market Reactions: Common Threads and Divergences

• Equity Markets:
  • The 2020 crisis witnessed the most abrupt equity downturn, with the S&P 500 plummeting by 31% in just over a month.
  • The 2008 GFC saw a significant decline as well, with the S&P 500 dropping 28% over several months.
  • The initial reaction to the 2025 Tariff Crisis has been more moderate, with the S&P 500 falling by 9.08% in the immediate aftermath, potentially due to the gradual implementation of tariffs.
  • In all crises, the Equity Risk Premium (ERP) rose, indicating increased investor caution.
• Bond Markets:
  • In all three crises, Treasury rates declined, reflecting a classic flight to safety as investors sought less risky assets.
  • However, the initial decline in the 2025 crisis has been less pronounced compared to 2008 and 2020, possibly influenced by emerging inflation concerns linked to the tariffs.
• Gold:
  • Gold consistently acted as a safe-haven asset during periods of crisis.
  • Prices rose during the 2008 GFC and the 2020 COVID-19 crisis.
  • While specific data for the 2025 crisis is not yet fully available, historical precedent suggests gold is likely to appreciate as trade tensions and economic uncertainty persist.

Economic Impact: Varying Degrees and Durations

• Equity Earnings:
  • The 2008 GFC resulted in the most significant earnings drop for the S&P 500 (40%), with a slow recovery.
  • The 2020 crisis also saw a substantial earnings decline initially, but recovery was notably faster due to swift stimulus measures.
  • The 2025 Tariff Crisis is expected to pressure earnings due to increased costs from tariffs, although the exact magnitude remains uncertain.
• Bond Yields:
  • Low Treasury yields persisted for an extended period following both the 2008 and 2020 crises due to aggressive central bank interventions.
  • The future trajectory of bond yields in the 2025 crisis is less clear, depending on the interplay between inflation fears (driven by tariffs) and potential recession risks.
• Gold Prices:
  • Gold prices increased in all crises, with the most sustained rise occurring after the 2008 GFC due to prolonged economic uncertainty.
• Broader Economy:
  • The 2008 GFC triggered a deep and protracted recession with lasting impacts on trust in financial institutions.
  • The 2020 crisis led to a sharp but relatively short-lived recession, followed by a faster recovery aided by significant stimulus, and also induced structural shifts like the rise of remote work.
  • The 2025 Tariff Crisis is currently unfolding, with the potential for a recession, reduced global growth due to trade barriers, and unpredictable inflationary consequences.

Resolution: Different Approaches

• The resolutions to the 2008 and 2020 crises heavily relied on substantial government and central bank interventions, including bailouts, massive fiscal stimulus packages, and aggressive monetary policy easing (interest rate cuts and quantitative easing). Regulatory reforms also played a key role in the aftermath of the GFC.
• The resolution of the 2025 Tariff Crisis remains uncertain. Potential paths include trade negotiations to de-escalate tensions and reduce tariffs, further retaliatory escalations, or economic adjustments to the new trade realities. Government interventions are possible if a recession materialises, but global coordination could be challenging.

Future Ahead: Long-Term Implications

• The 2008 GFC ushered in a decade of low interest rates, increased regulation of financial institutions, slower global growth, and a rise in populist sentiments.
• The 2020 COVID-19 crisis accelerated digital transformation, highlighted the importance of supply chain resilience, increased government debt, and potentially contributed to inflationary pressures as stimulus measures unwound.
• The 2025 Tariff Crisis is likely to reshape global trade dynamics, potentially leading to increased protectionism, supply chain reshoring, and economic fragmentation. Inflation risks may rise due to higher import costs, and global growth could be negatively impacted if trade barriers persist. The long-term competitiveness of economies navigating these trade shifts will be a key concern.

Conclusion

This comparison underscores the distinct nature of each crisis while also highlighting some common investor behaviours, such as the flight to safety and the role of gold as a hedge. The 2025 Tariff Crisis, being an ongoing policy-driven event, introduces significant uncertainty regarding its ultimate economic impact and resolution, particularly in the realm of global trade and inflation.