Going “Asset –Light” Can Still Be Costly
Over the past decade, companies that typically rely on big, expensive fixed assets such as heavy manufacturers (plant and equipment) and telecom operators (infrastructure) have sought to improve their asset utilization by outsourcing the ownership and management of these assets to other companies. Semiconductor companies such as Texas Instruments outsource some of the making of their chips to such “wafer fabs” as Taiwan Semiconductor. Telecom operators have outsourced the ownership and management of large parts of their network to Ericsson and IBM. I talk about this “asset-light” approach in “Business Acumen: Your Key to Success.”
But this approach deals mainly with fixed tangible assets. The intangible portion of a company’s fixed assets must still be managed effectively, if a company is to make the best use of its owners’ and lenders’ money. The mobile phone industry provides us with a good example of this challenge. Recently, the Indian government auctioned of the rights to use the airwaves to the 15 mobile companies now operating in India. According to a recent article in the Economist, this has been a boon to the government’s coffer’s but of course much more expensive than the telecom operators had planned for. These operators paid the rupee equivalent of about $14.6 billion dollars for the spectrum that enables them to sell new 3-G wireless services.
The mobile phone market is booming in India. There are now over half a billion subscribers, with around 20 million or so added each month. But the market is crowded with providers and price competition for voice services is brutal. All of the Indian wireless service providers need more than voice revenue to pay for their huge investment in their newly acquired intangible asset.