This year, the risks around investment have risen, while also evolving into a lack of confidence about the level of returns.
In the past two years, operators have been quite successful in tackling the challenge of the data deluge on their networks, thanks to a combination of smart investment and growing use of alternatives such as WiFi and offloading to backhaul.
These factors, together with operators' readiness to flex capex to maintain free cash flows and dividends, have underlined their strong capex control and reinforced their defensive status. There is also a trend toward moving capex spend into opex through outsourcing, in order to smooth capex spend over time.
However, tight capex control has ambivalent outcomes — and increasingly risks sidelining operators from future growth. External forces such as regulation and customer demand mean operators remain cautious about investing in infrastructure.
These same considerations — together with uncertainty over new market structures — are also contributing to persistent doubts over the revenue potential of new services.
Telecoms capital intensity by region 2008–Q2 20114
Levels of capital intensity remain largely stable worldwide and are now relatively consistent in all regions. Growth-driven capex in emerging markets is falling back from its previous highs, and the release of new spectrum is lagging in some developed markets.
Nevertheless, there is a risk that tight capex control can undermine service quality, competitiveness and the growth prospects of new services.
The importance of timing
With the number of high-speed mobile connections globally continuing to grow rapidly getting the timing of new investments right is critical for achieving the targeted returns.
To do this, operators need to understand clearly how infrastructure upgrades relate to customer demand, competitor actions and government industrial policies. This can be supported through better leveraging and optimization of legacy networks to complement network/service availability.
This is a complex task. It requires confronting challenges such as uncertainties in supply and demand amid factors such as spectrum releases, soaring usage of high-bandwidth applications and shifting market structures as network sharing and consolidation continue to gain ground. Also, many operators have multi-technology strategies and fail to fully understand the complementarities and optimization factors between them.
Operators need to tackle all these challenges while continuing to invest in network infrastructure. All too often, their capex planning is driven by a focus on protecting cash flow or by pressure to build out greater bandwidth capacity even though the business case remains ambiguous, thus limiting the future revenue and margin potential of new services.
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4Ovum, "Network infrastructure report," 19 September 2011.