Although there are signs of economic recovery, telcos have not loosened the purse strings. However, they are making judicious investments to deliver a sustainable and flexible business.
Ovum’s report What telcos bought from their suppliers – 2014 edition analyzes the contracts awarded by the top 24 telecoms service providers (by revenue), and gives insights into the trends associated with the buy-side of the telecoms market.
Contract awards grew by 4% despite revenue growth remaining flat in 2013. Telco capital investment picked up compared to 2012, with capex growing slightly from 4% in 2012 to 6% in 2013, after experiencing a drop from 15% in 2011. The main investment drivers were the need to improve the quality of services, reduce operational costs, and seek revenue opportunities.
The total revenues of our sample set of telcos remained flat in 2013, which was a slight improvement on 2012, with total value standing at $1.1 trillion. The decline in voice revenues was offset by growth in mobile and fixed (broadband) data services. Telcos’ business models and profit margins remain under pressure from new technologies creating substitute services, toughened regulations, competition from peers and OTT service providers, and poor macroeconomic conditions.
Telcos have, however, continued to invest in network and IT to drive revenues and improve profitability. Capex grew by 6% to about $188 billion in 2013, with the average capex growth rate for the 24 telcos analyzed standing at 4%. The relatively high capex growth rate of more than 30% recorded by emerging market operators in China and the Middle East & Africa counterbalanced the declining capex growth rates in some mature markets, for example Japan. However, capital intensity has remained constant at 17%, which is consistent with Ovum’s expected industry capital intensity between 2013 and 2019.
Opex on the other hand dropped by 4%, reflecting the cautious move by operators to cut down on operating costs limiting profit margins. The measures taken by telcos to reduce their opex include the sale of unprofitable assets (with running costs that do not contribute to topline growth, but instead hinder the bottom line) and the outsourcing of non-strategic business processes.