July 1, 2020

Dear Subscribers,

Yesterday we published our latest market review of the telecom sector, for the period ended March 2020 (1Q20). This quarter we added a number of new data series and features to the report, and I wanted to share a few of the enhancements with you.

Best regards,
Matt Walker
Chief Analyst

Regional breakouts

We now publish both revenues and capex by region, focused on the Americas; Europe; Middle East & Africa (MEA); and Asia.

Revenues by region in the first quarter of each calendar year since 2011: this shows the relative stability of the Americas and Asia, the gradual decline of Europe, and the small but steady contribution from MEA.
Capex contribution by region for the last 9 quarters: overall a story of stability, with some signs of different cyclicality by region. One factor is the typically strong first quarters in Japan and India. Also apparent is the heavy reliance of the MEA region on fourth quarter budget flushes.
Capex by country

We break out capex by country for a number of large markets, including the US. One surprise in the first quarter was that, despite COVID’s spread, the YoY growth rate in annualized (12 month trailing) capex held steady relative to 4Q19. That’s due in part to classification of telecom construction as an essential service, and is consistent with results on the vendor side.
Taking a longer-term view: the below chart compares the top capex spenders in the US market in 2011 with 2019. One takeaway is that AT&T has fallen a bit, despite a series of acquisitions. Relatedly, several of the important spenders in 2011 have gone away through M&A. This market consolidation, along with telcos’ enhanced collaborations with the webscale sector and carrier-neutral providers, both contributed to a 2019 capex result in the US that was virtually unchanged from 2011 ($88.1B vs. $88.3B). (Note: you may need to zoom in for this one).
Employee costs

As a complement to our network spending analysis, we also track telcos’ spending on their employees. Labor costs have been relatively steady over time, while capex has been on the decline. In 2019 the two figures were nearly equal, as shown here:
Spectrum and M&A investments

In addition to covering capex, we now track telco investments in spectrum, and mergers & acquisitions (M&A). Spectrum and M&A costs can be large enough to crowd out a telcos’ ability to spend on the network.

AT&T is an example. In 2015, AT&T spent nearly as much on spectrum as on capex, and its M&A spend (net of cash acquired) exceeded capex in both 2015 (due to DirecTV) and 2018 (Time Warner). Not coincidentally, AT&T's capital intensity in 2019 was among the lowest in the industry, at 10.7%.
Software capex

Telco capex has always contained a mix of spending on property, (capitalized) labor, network equipment, and software. The software piece is traditionally the hardest to quantify. We now break out software capex separately from total capex, for a large number of carriers. As we reported in our recent report, “Telco software capex on the rise,” the portion of capex spent on software has been growing in the last few years. One reason for that is a number of Asian carriers are starting to scale software investments, as the chart below illustrates for China Telecom.
Benchmarking individual telcos

Ever wonder how some specific telco stacks up against its peers, whether in terms of earnings, debt, capex, or some other metric? We have built a “Single-company drilldown” tool into this report that answers many of these questions. Taking Telefonica as an example:

How big is the company in revenue terms and how has that changed?
How have first quarter earnings before interest & taxes (EBIT) evolved for this same group of companies?
How does Telefonica’s EBIT margin compare against big European telcos?
How does the company’s free cash flow position (relative to revenues) compare to leading peers?
What is the company’s debt position (net of cash) relative to big European peers, and is it heading in the right direction?
How heavily does the company spend on its network (capex) relative to European and global averages?
How significant are Telefonica’s employee costs as a portion of opex (excluding depreciation), versus other large European telcos?
If you are interested in previewing the full report, or have any questions, feel free to contact me.

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