Tuesday, August 19, 2008

To Invest Capital or Not to Invest?

Businesses contemplating the deployment of new technology have always struggled with a fundamental question:  will they be better positioned by extracting the greatest use out of existing technology or will capital investments in new technology actually yield better results? The answer to this question is not easily determined, primarily because all benefits of new technology deployment cannot be quantified.  Take for example, Verizon's investments in FiOS.  From investors to other telecommunications carriers, there has been mixed opinion on the value of deploying fiber optics to the home.  Initial skepticism of FiOS is apparently waning for some with Verizon trumpeting unexpected advantages from their initiative.  Others who are more financially oriented and who favor Economic Value Added-based approaches to investment however, might favor the more conservative direction of "no new capital before it's time" and that time seems to be well after the asset is deemed obsolete.  The most appropriate direction is perhaps one that focuses on the nature of the investment.  Is the investment a strategic one or not?  If one considers a carrier's network investment strategic, in other words, a differentiator from competitors in every sense of the word, and Verizon certainly seems to have taken that view with both wireless and wireline networks, then the investment is warranted since it delivers against customer desires and internal objectives.  If, on the other hand, a carrier's network is simply another undifferentiated part of their business, perhaps the wisest approach is to defer the investment or redirect it toward those things that are strategic.  There is no clear "correct" answer to this question and more will be written on it in the future.  Comments are welcome.  

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