Telecommunications Network Operators: 1Q22 Market Review

This market review provides a comprehensive assessment of the global telecommunications industry based on financial results through March 2022 (1Q22). The report tracks revenue, capex and employees for 138 individual telecommunications network operators (TNOs). For a sub-group of 79 large TNOs, the report also assesses labor cost, opex and operating profit trends. The report also covers annual data for other financial metrics such as debt, cash & short term investments, M&A spend and cash flow from operations for all the 79 companies from the TNO-79 subset. Our coverage timeframe spans 1Q11-1Q22 (45 quarters). The report’s format is Excel.

ABSTRACT

1Q22 RESULTS SUMMARY

Telco topline plunges again

After a blockbuster year which saw telcos attaining the strongest annual growth rate (5.3%) in a decade, the telco topline dove again in 1Q22. For the latest single quarter, telco revenues dropped by 2.1% on a YoY basis to post $463.2 billion (B). This is the second consecutive falloff, with a 1% drop registered in the fourth quarter of last year. Annualized revenues were $1.878 trillion (T) in 1Q22, up by just 2.9% YoY, due to the declines of the last two single-quarters.

At the operator level, the three Chinese operators were the only ones among the top 20 (by revenues) to post double-digit growth on an annualized basis. These include China Mobile (17.9% YoY vs. annualized 1Q21), China Telecom (17.5%), and China Unicom (12.9%). The worst telco growth among the top 20 operators came from Telefonica (-9.2%) during the same period. Five other operators, namely AT&T, NTT, KDDI, Telecom Italia, and America Movil were among the top 20 to post a decline in revenues on an annualized basis in 1Q22. Growth witnessed by a few operators was mostly an outcome of low base effect in the previous quarters. Another factor for some operators is non-service revenues, as these have grown with 5G device sales in many markets. Telcos now hope that the 5G-enabled devices already deployed will help to generate new revenue streams in the forthcoming quarters of 2022 and beyond. But that seems unlikely as a major chunk of the growth is expected to come from device sales. MTN Consulting’s latest forecast calls for 2022 telco revenues of $1,929B, up 2% YoY.

Annualized capex scales new peak amid cautious spend by telcos

Single-quarter capex grew modestly by 2.1% on a YoY basis, totaling $77.9B in 1Q22. Telco investments grew for the fifth straight quarter, as the desire to deploy 5G network capability remained strong. Some telcos are spending more cautiously amid economic uncertainties due to the ongoing Russia-Ukraine war. With slowdown concerns gripping the key economies worldwide, telcos nonetheless continue to upgrade networks to 5G, with a growing number beginning deployment of stand-alone 5G core networks, often relying on collaboration with webscale operators like AWS, Azure and GCP for key functions. The growth in the latest quarter also propelled annualized capex to scale the new peak of $327.9B in 1Q22. MTN Consulting expects full-year 2022 capex to total $331B.

Since capex grew faster than revenues in the latest quarter, the market’s annualized capital intensity rose, from 16.4% in 1Q21 to 17.5% in 1Q22. This 17.5% is the same as was recorded in 1Q16, during the peak of the LTE build cycle. At the operator level, Rakuten beats all other telcos handily with a roughly 214.7% capex/revenue ratio for the quarter on an annualized basis; its greenfield network rollout is reaching its peak.  Globe Telecom’s capital intensity for the annualized 1Q22 period stood at 56.3%, the highest among established operators. Globe’s figure is due to a network infrastructure buildup that includes 1,080 new cell sites, upgrades to at least 12,900 sites including both 4G LTE and 5G, and installation of over one million fiber-to-the-home lines. PLDT’s annualized capital intensity also hovered around 50% in 1Q22, as spending ramped both for meeting connectivity demands and taking on new competition from the new mobile player Dito Telecommunity Corp. The global capex climb was also due to telcos choosing from a smaller set of suppliers than in previous years: the US-sponsored entity list has severely limited opportunities outside China for Huawei, which is still the world’s largest telecom vendor. Less competition frequently means higher prices. Inflationary pressures in many economies make this worse.

The biggest capex spender in 1Q22 on a single quarter and annualized basis was China Mobile. This was despite the company’s YoY growth of just 4.7% in the annualized 1Q22 period, enabled by China Mobile’s network partnership with China Broadcasting Network. Nine out of the top 20 operators by annualized capex spend posted double-digit growth rates in the period ended 1Q22. Some of these include: Telecom Italia (62.9% YoY vs. annualized 1Q21), America Movil (57.5%), BT (54.5%), Rakuten (45.6%), Verizon (24.1%), China Unicom (23.1%), CK Hutchison (18.7%), AT&T (12.8%), and BCE (11.1%).

Telco profitability stays intact through software-based digital transformation and automation

Telco profitability held its strong stance into 1Q22. Historically, telcos have maintained stable profitability margins – EBIT (operating) margins have been in the range of 13-18% while EBITDA margins have never fell below 30% since 2011. This trend continued to stretch out into 2022. Annualized operating margins ended 1Q22 at 15.4%, up from 14.6% in the same quarter of prior year. Annualized EBITDA margins improved marginally, up from 34.1% in 1Q21 to 34.3% in 1Q22. Labor costs as a percentage of opex ex-D&A moderated in the latest quarter after rising in the past few quarters, which means they are not directly causing this margin growth. Rather, within the overall telco opex budget, telcos are having success in cutting their sales & marketing and G&A spending, as telcos adjust to working from home and accelerate the migration of sales & support to digital platforms. These efforts accelerated in 2020, as COVID-19 spread and telcos were forced to do business with minimal human intervention, but have continued in 2021-22. MTN Consulting expects telcos to continue reducing their headcount by revamping their processes, investing in digital transformation, and adopting automation. These investments will cause labor’s share of opex ex-D&A to rise again soon, and remain above 22% for the next few years. Meanwhile, many telcos are reporting that network operations is taking up a larger portion of the opex pie. Managing costs is core to telcos’ willingness to partner with webscale providers, whose sales of software licenses to telcos are growing, posing a grave challenge to the more traditional telco-centric vendors like Cisco and Nokia.

No respite in industry headcount reduction as labor costs rise

Telco industry headcount was 4.622 million in 1Q22, down from 4.744 million a year ago. MTN Consulting expects headcount reductions to continue via attrition and voluntary retirement schemes, heading towards 4.39 million by 2026. Spending on employees (labor costs) continues to be on a rise though on a per-person basis. Even as telcos cut headcount, they recognize how key their workforce is to success. As such they are investing in training programs, and hiring a new generation of highly-skilled employees able to function in the telco of 2022. Data from 1Q22 verifies that telcos’ average labor costs per employee are rising as telcos make this transition – annualized labor costs per employee increased to $58K in 1Q22 from $54.8K in 1Q21. MTN Consulting expects the average telco employee salary to continue rising, reaching just above US$70K by 2026.

Asia outperforms Americas by both revenues and capex

The Asia region finally surpassed the Americas to emerge as the single largest region by revenues in the latest quarter. In terms of growth, all regions were a mixed bag – Asia and MEA regions topped revenue growth among the four major regions in 1Q22, but were also the ones to post declines in capex. Similarly, revenues for Europe and the Americas declined YoY but posted growth in capex in the latest quarter. On a capex basis, the Asia region has been outspending the Americas for many years but the Americas region posted a robust 18.7% YoY capex growth in the latest quarter; Verizon, AT&T and America Movil are responsible for most of this growth. Europe’s capex growth was flat at 0.5%. However, Europe’s annualized capital intensity of 19.7% (1Q21: 17.8%) was the highest among the four regions in 1Q22. This surge was a direct result of 5G buildouts, many of which were delayed from 2020 due to COVID shutdowns and spectrum auction delays.