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Monday, June 19, 2023

CAPEX in telecoms - beware of headline numbers

This post originally appeared on June 12 on my LinkedIn feed, which is now my main platform for both short posts and longer-form articles. It can be found here, along with the comment stream. Please follow / connect to me on LinkedIn, to receive regular updates (about 1-3 / week)

CAPEX numbers are important in #telecoms. But they're also often collected and analysed in a haphazard fashion, or sometimes twisted and misinterpreted. There are examples that wrongly imply casual links or are carefully selected to drive specific policy choices.

- Telco execs watch CAPEX stats as they're important elements of cashflow & also signify key strategies and technology transitions
- Vendors watch #CAPEX stats to understand demand for new products
- Investors watch CAPEX as inputs to their valuation models, and as a barometer for company/industry health and prospects
- Policymakers watch CAPEX as it gets captured in "investment" statistics, and as an indicator for potential regulatory changes (or as a metric of success of previous policies)

Various ratios are commonplace, for both companies and the industry:
- CAPEX vs. revenues
- CAPEX of telecoms vs. tech/hyperscalers
- CAPEX vs. R&D spending
- Fixed vs. Mobile CAPEX
... and so on

The problem is that "telco CAPEX" is also a very vague and malleable concept. Digging into it reveals many more questions - and problems with the methodologies and conclusions drawn, especially where headline numbers are concerned.

Some of the questions I'm currently looking at include:

- What counts as a "telco"? Are you including towercos, subsea fibre operators, municipalities building networks, MVNOs and many others?
- Are historic CAPEX numbers restated when telcos sell or acquire other businesses, especially tower spin-outs?
- Is it meaningful to compare CAPEX for 10 / 30 / 50 year assets such as #FTTP, which will generate decades of new revenue, with last year's figures?
- How do you separate CAPEX for basic coverage vs. incremental capacity vs. "generational" upgrades to fibre or #5G? A lot of CAPEX occurs even if usage is low
- How do you deal with leasing or other financing models? If CAPEX shifts to OPEX, how is it captured in the stats?
- What happens with "cloudified" networks? Firstly they rely on shared (often 3rd-party) assets, and secondly they are *supposed* to lower costs / investments. But will the lower CAPEX be viewed as a sign of distress, not modernisation?
- Is non-network CAPEX broken out (eg retail sites, central offices, datacentres etc)?
- Is "adjacent capex" included and if so, how?, eg in-building #wireless, #spectrum licenses, software development

I hear many commentators and lobbyists claim "#NetNeutrality led to lower CAPEX!" or "Streaming traffic leads to higher CAPEX!" or "There's an investment gap!". Without detailed data - and an analysis of causality - you have to question the veracity & meaningfulness of such rhetoric.

In summary - CAPEX is indeed important. But in fact it's so important, that headline numbers are often useless or misleading.

Ask for details on segmentation, methodology and definitions - if they aren't available, treat the numbers with deep skepticism.

#FTTX #telcos #regulations #networks #fairshare

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