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I can't recall the exact company name (Edit: it was TCI), but this was a smart accounting move that made one of the big US telcos frogleap the competition in th
by IG_Semmelweiss 2y ago
I can't recall the exact company name (Edit: it was TCI), but this was a smart accounting move that made one of the big US telcos frogleap the competition in the race for connectivity.
Basically, the company invested sufficient into long term assets, big infra investments like cabling, towers, etc. Because of accounting rules, they could choose to amortize all of that investment in a straight line over 30 years, OR accelerate depreciation in the short term.
I believe the company always chose the latter, and the net effect of this was that every year the company would show a loss, 100% related to said infra investments. However, when you carved out depreciation, the company was clearly making increasing amounts of money. Further, all that fiber was capturing new clients, which was free cash flow which they would turn around and capture even more customers with a new round of investments. In effect, the use of accelerated depreciation helped the company manage its tax obligations while expanding aggressively. By deferring tax liabilities and reinvesting capital, the company was able to capture market share and grow its customer base.
Eventually they had to show income and therefore pay the IRS, but by that time they were at the leading edge of the race and investors rewarded this company's CEO handsomely.
- jld 2y agoSounds like John Malone at TCI Cable
- parpfish 2y agoJohn Malone at TCI? (I learned about it from HN here a couple days ago: https://news.ycombinator.com/item?id=41263855 https://news.ycombinator.com/item?id=41263855)
- IG_Semmelweiss 2y agowow, that is correct. I read this in a book over 10 years ago, and now 2 articles about the same trick within the same week.
- xNeil 2y agoCable Cowboy, I'm guessing. Great book!
- devsda 2y agoI think Amazon also had a similar strategy. They had lot of profit-less years of growth and they have captured a big part of the market share.
- Sohcahtoa82 2y agoI had one of my wife's relatives in 2013 tell me "I'd never buy Amazon stock. They've been in business for 15 years and still are not profitable!" I tried to explain that it's because every dollar of potential profit was funneled back into R&D and company expansion, and that revenue has been growing steadily, but he just didn't get it. If he'd bought stock then, he'd have ~10x'd his money in that time, whereas the S&P500 has ~3x'd. I would have bought stock myself back then, but I was a broke college student.
- mst 2y agoHN hivemind has already delivered but I've found that for "I can describe it but can't remember the name" an LLM will have a decent chance of surfacing the name given the description (and is usually a very simple case to verify unlike much LLM output).
- sgerenser 2y agoChecked this with ChatGPT and it thought I was talking about WorldCom.
- mst 2y agoJust tried with Claude and it got it differently wrong. My first guess was that once it became a known good strategy, it proliferated, and therefore LLMs are pulling companies that did the thing but didn't pioneer the thing, but suggesting that gave me yet another wrong answer. I think I'm just going to file this under "apparently a pretty terrible case for the technique and I should adjust my heuristics as to when it's worth trying" at this point.
- sgerenser 2y agoChatGPT actually completely misunderstood the description, and cited WorldCom as using “aggressive accounting” to show excess profits, vs. TCI’s supposed “excess losses.” So it didn’t even manage to find another example of a company doing something similar to TCI.