## PART XV - SECTOR PLAYBOOKS | MODULE 103 # Telecom Analyst Playbook > Mission. Build a sector-specific research system for Telecom that converts operating data into financial outcomes, highlights the accounting areas most likely to distort comparability, and selects valuation methods that reflect the sector's economics. ## Economic engine and binding constraints Model subscribers, adds/churn, ARPU, device economics, network capex, spectrum, tower/fiber commitments, convergence, competition, and leverage. Distinguish accounting EBITDA from cash after spectrum and network investment. ## Primary KPI stack | KPI | Construction / analyst control | | --- | --- | | subscribers | Paying customer/subscriber accounts at period end or average for the period under a consistent active-status definition. Validation: Tie physical/operating units to company disclosures or source-system data; reconcile beginning/ending populations where applicable and test scope, ownership, and period consistency. | | ARPU | Average revenue per user/subscriber: relevant service revenue divided by average users/subscribers and period units, such as month or quarter. Validation: Recalculate price/cost from underlying dollars and physical units; test mix, rebates, FX, timing, and unit-definition effects; reconcile to reported revenue or expense. | | churn | Subscribers/customers lost during the period divided by opening or average subscriber base under a clearly stated gross/net churn convention. Validation: Recalculate from same-scope numerator and denominator; confirm period, units, cohort/geography, and issuer definition; reconcile material differences to filings or operating data. | | net adds | Gross subscriber additions minus disconnects/churn during the period, reconciled to beginning and ending subscriber counts. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. | | fiber passings | Locations serviceable by the fiber network, distinguished from connected subscribers and homes/businesses merely planned for build. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. | | capex | Maintenance capex is the spending required to preserve current earning power, estimated from asset replacement and operating evidence rather than management labels alone | | spectrum | MHz-pop or licensed spectrum holdings by band/geography, adjusted for ownership and usable bandwidth; pair with subscribers/traffic for capacity context. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. | | service margin | service margin = relevant profit or cash-flow numerator / relevant revenue base, using a consistent definition. | ## Sector-specific accounting and comparability traps - Spectrum licenses: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs. - Leases: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs. - Device financing: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs. - Capitalized labor: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs. - Pension: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs. ## Valuation frameworks - EV/EBITDA: enterprise value divided by normalized EBITDA; adjust leases, pensions, minorities, recurring restructuring and capital intensity before peer comparison. - FCF yield: normalized levered free cash flow divided by equity value; reconcile SBC, working capital, maintenance capex, taxes, and cycle before comparing companies. - Sum-of-the-parts: value each economically distinct segment with its appropriate framework, then subtract corporate costs and all non-common claims before deriving equity value. ## Sector diligence questions - What is the most important leading indicator for Telecom, and how many months does it lead reported revenue or cash flow? ## Sector stress and falsification - Stress subscribers and ARPU together in the direction most likely to break the equity story; flow the result through working capital, capex, liquidity, financing, dilution, and valuation. - Explicitly test spectrum licenses. Determine whether it can make the reported sector comparison look better or worse without equivalent economic change. ## 99-point standalone execution extension ### Model architecture and forecast chain Model subscribers, gross adds, churn, ARPU, device economics, network usage, spectrum, capex, tower/fiber lease, and promotions. ### Leading-indicator dashboard Track porting, subscriber adds, pricing/promotions, handset cycles, spectrum auctions, capex, network quality, fixed-wireless/fiber adds, and competition. ### Primary-source map SEC filings; FCC subscriber, spectrum and broadband data; auction records; company network/capex disclosures; public porting/coverage data where available; tower/fiber counterparties. ### Accounting normalization test Device financing, leases, spectrum capitalization, pension, tower transactions, and customer acquisition costs complicate FCF. ### Valuation implementation Use DCF, EV/EBITDA with capex/leasing normalization, and sum-of-parts where infrastructure assets differ. ### Worked numerical mini-case > Illustrative subscriber case. 50m subscribers at $55 monthly ARPU produce $33bn annual service revenue. A 50 bp increase in monthly churn materially raises gross-add requirements and acquisition cost even if period-end subscribers look stable. Bridge net adds, ARPU, device subsidies, spectrum, network capex and lease obligations before using EV/EBITDA. ### Monitoring and falsification cadence Breaks include price war, churn spike, network disadvantage, capex intensity, spectrum cost, or leverage limiting investment. At every quarterly update, rebuild the driver bridge from operating units to revenue, margin, cash flow and valuation; compare leading indicators with the prior forecast; record definition changes; and precommit the threshold that would trigger a thesis reset rather than a cosmetic estimate change. ## Sector exit standard The Telecom work is complete only when the analyst can explain the business in its native operating units, reproduce the KPI history, identify the binding growth constraint and marginal price setter, normalize sector-specific accounting, quantify a coherent adverse case, and translate the current market price into the operating expectations that must be met or exceeded.