And there are others who invested early that perhaps bailed as they saw the proxy begin to strain. That said, there are certainly investors who invested at the height of the proxy usage who have ill feelings about such notions. From a societal view, one could argue that they are good, as they facilitate the acquisition of capital that is necessary to build capital-intensive infrastructures like wireless stations and cable plants. So are proxies good or bad? The answer to this question depends on who you are. And I think the per-POP valuation may already be dragging down wireless stocks.' But it's not how Wall Street generally values firms in markets that have the competition coming in to wireless. The 'per POP' system served its purposes during the salad days of cellular, when we were green of years. 'As the wireless industry goes far beyond its current dimensions, Wall Street analysts are going to have to think about valuation methods. Consider the following quote from a 1997 speech by then chairman of the Federal Communications Commission, Reed Hundt: Historically, proxy valuations have helped investors become overly optimistic. Why worry about earnings when you could instead convince the world to value your company based on the number of people that live in your service area?

Once again, don't look here, look over there. This simple model ignores, however, that the executive could instead choose to change the investor's consideration process. In this simple framework, investors look at data, and executives try to deliver better data-i.e., increase earnings, revenue, and cash flow. Most people view investment consideration as a bilateral relationship in which the investor gathers as much data as he or she can about a particular investment and then judges that data to make an investment decision. So even though these companies may have been hemorrhaging cash, investors could now take comfort that a cable franchise was worth $2,000 per home passed, or that a wireless company was worth $30 per POP (percentage of population).

Rather than settle for second best, the early executives in both of these industries created new metrics based on more measurable data by which to judge the valuation of these companies. Why is instituting proxy valuations a stroke of genius? As early stage infrastructure companies use tons of capital, investors would have a hard time awarding high valuations to companies with huge losses based solely on earnings-based investment metrics. As alternatives, he offered up new metrics such as 'homes passed' and 'POPs'-don't look at this, look at that. In other words, McCaw convinced analysts and investors alike that valuation tools such as price-earnings and price-cash flow were flawed when evaluating early stage infrastructure plays.

When asked to describe why, Gates pointed out that McCaw had convinced investors in not one, but two industries to pay attention to proxy valuations as opposed to traditional valuation metrics.

Topping the list was his Seattle friend Craig McCaw. I once had the unique opportunity to hear Bill Gates, certainly one of the smartest and most successful men alive, describe other people he admired.

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