Network financing

Despite unrelenting pressures on revenue, telcos are having to maintain, if not step up, their investments to (re)create value around new services. The dilemma is especially acute in Europe, where revenue and capex have been steadily moving in opposite directions over the past decade.

Expenditure growing faster than the markets…

Telcos’ global spending stood in excess of 300 billion EUR in 2017, which marks a more than 5% annual increase over the past five years, so considerably more than the pace at which their revenue has been growing (around 1% a year, on average). In other words, it is becoming increasingly taxing for telcos to maintain their investments amid what are increasingly costly imperatives: superfast rollouts in most parts of the world and the emergence of 5G, to name but two.

The capex-to-revenue ratio has thus soared from 12.5% in 2010 to around 17.5% today, on average, in Europe’s five main markets. At the same time, it has increased by only just over one point in the United States, where it is still below 14%. Despite which, capex – here set against the size of the markets (population) – is almost double in the US what it is in Europe. The proportion we find in Europe is roughly comparable to what it is in Asia’s advanced economies.

… and creating pressure on operators

These comparisons provide a good illustration of the difficult equation that a good number of telcos are facing. How, then, to reconcile long-term viability and the promise of high-yield investments, with the short term and its reality of potentially very burdensome spending?

IDATE DigiWorld has calculated that, under the current circumstances, if the European Union were to increase its per-capita spending levels to match those in the United States, it would mean a more than twofold increase: at least an additional 50 billion EUR a year. Which is hard to imagine given the industry’s local means.

Several options to help relieve market players are emerging, such as infrastructure sharing and network outsourcing. This could also include government intervention: subsidies or PPPs in those areas that are not profitable, providing free or low-cost access to spectrum to bolster network investments and so, for instance, strengthening coverage obligations. Hence a number of opportunities are at hand which, while not being proper to Europe of course, could nevertheless help the Old Continent to stay the course in the ongoing drive to deploy leading-edge electronic communications infrastructure.

 
Telcos' investments growing faster than revenue
 
Sharp drop in per capita spending in Europe