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Telco Capex: 1Q21 Results & Outlook

Revenues for the telecom sector saw a rebound in 1Q21, up 7.3% from 1Q20, to $473.2 billion. This is the fastest growth in at least a decade. Three factors are responsible. First, the base period of 1Q20 was weak due to the initial spread of COVID-19, when travel and regular work routines both came to a standstill. Second, as 5G network penetration has grown, telcos have recorded an impressive uptick in (one-time) device/equipment revenues. Finally, 1Q21 saw a sizable drop in the US dollar’s relative value in several key markets, including China, Europe, Japan, and Australia. Holding exchange rates fixed, the telco industry growth rate in 1Q21 would have been 4.3%.
The momentary revenue upswing in 1Q21 did not cause telcos to go on a sudden spending spree. They have been on the march towards cost reduction via digitation, virtualization, and automation for many years, and nothing has changed. That impacts capital expenditures: capital intensity in the telecom industry declined again in 1Q21. For the four quarters ended March 2021, annualized capex amounted to 16.33% of revenues, from 16.43% in 4Q20. This is the seventh straight sequential decline, and consistent with MTN Consulting’s expectation...
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Matt Walker
Chief Analyst