United Internet's Capital Conundrum: Strategic Reinvestment vs. Declining Returns in Telecom Infrastructure

The telecom industry is a paradox of long-term value creation and short-term financial strain. For United Internet (ETR:UTDI), this tension is crystallizing as the company pours billions into fiber-optic and 5G infrastructure while grappling with a sharp decline in returns on capital. Investors must now weigh whether these reinvestments will catalyze a new era of profitability or deepen the erosion of shareholder value.

A Decline in Core Metrics: ROIC and ROCE Under Pressure

United Internet's financial health has been defined by a troubling trend in its capital efficiency. According to a report by Simply Wall Street, the company's Return on Capital Employed (ROCE) has plummeted from 12% in 2020 to 7.9% by March 2024. Similarly, its Return on Invested Capital (ROIC) has languished at 4.40% as of the latest data. These metrics, which once signaled a robust ability to generate profits from capital, now reflect a company struggling to justify its reinvestment costs.

The root cause lies in the telecom sector's capital-intensive nature. United Internet's 2025 capital expenditures are projected to peak at €750 million, with €800 million allocated to fiber and 5G expansion. According to an earnings call transcript, while these investments aim to reduce reliance on third-party networks and boost long-term margins, they come at the expense of immediate profitability. For instance, in the first nine months of 2025, the company's EBIT fell 11.3% to €443.2 million, largely due to elevated depreciation costs from infrastructure projects.

Strategic Reinvestment: A Double-Edged Sword

United Internet's strategy hinges on the premise that owning its own infrastructure will yield higher-margin growth. By 2025, the company aims to cover 66,000 kilometers with fiber and expand its 5G network. These efforts are expected to reduce wholesale access costs and transition customers to its proprietary mobile network. However, the trade-off is clear: capital expenditures have surged, and cash flow has become increasingly strained.

Data from Seeking Alpha reveals that United Internet's cash capex for 2023 hit €756 million, with 2024 projections rising by 10–20%. Yet, despite this aggressive reinvestment, sales growth has remained modest-just 1.9% in 2024. This disconnect between spending and revenue raises questions about the efficiency of capital allocation. If the company's returns on infrastructure investments fail to outpace its cost of capital, the long-term value proposition for shareholders could unravel.

The Shareholder Dilemma: Patience vs. Performance

For investors, the challenge lies in balancing strategic vision with financial reality. United Internet's management argues that the current reinvestment phase is a necessary prelude to margin expansion. As stated in a Q3 2025 earnings call, the company anticipates "higher-margin growth" as its self-owned networks scale. However, this optimism must be tempered by the risk of overcommitment. With EBIT declining at an average annual rate of -31.5% over five years, the company's ability to sustain reinvestment without compromising liquidity remains uncertain.

The key question is whether the returns from these infrastructure projects will materialize quickly enough to offset the drag on profitability. If United Internet can successfully transition customers to its own networks and reduce wholesale costs, the long-term payoffs could justify the short-term pain. But if the company's capital efficiency continues to deteriorate, the market may begin to price in a permanent loss of value.

Conclusion: A High-Stakes Bet on the Future

United Internet's trajectory exemplifies the inherent risks of capital-intensive industries. While its reinvestment in telecom infrastructure is a bold move to secure competitive advantage, the declining returns on capital signal a critical inflection point. Investors must monitor two key metrics: the pace of margin improvement as self-owned networks scale and the efficiency of capital allocation in future projects. For now, the company's strategy is a high-stakes gamble-one that could redefine its value proposition or deepen its financial challenges.