Telcos' Investment Challenges - CAPEX dynamics

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Telcos' Investment Challenges - CAPEX dynamics
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Description:
As the need to deploy superfast systems becomes apparent, telcos are signing more and more cooperation agreement (sharing, pooling, outsourcing) and seeking out new financing models. Based on an analysis of the global marketplace and its players (23 countries, 22 telcos profiled), this report examines fixed and mobile network CAPEX from 2007 to 2012, and analyses why the pace of investment picked up in 2012.

Region:
Asia-Pacific, Europe, Latin America, MEA, North America, Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Netherlands, Poland, Russia, South Korea, Spain, Sweden, Switzerland, Turkey, UK, USA

Keywords:
CAPEX strategies, Capital Expenditures, core network, financing models, fixed investments, full outsourcing, insourcing, investment in networks, mobile investments, network CAPEX, network outsourcing, network sharing, open access, reducing investment, telcos CAPEX, telcos investments, telecom investment, América Móvil, AT&T, BCE, Bharti Airtel, BT, China Mobile, China Telecom, China Unicom, Deutsche Telekom, France Telecom, KDDI, KT, MTN, NTT, OI, Softbank, Sprint Nextel, Telecom Italia, Telefónica, Telstra, Verizon, Vimpelcom, Vodafone

Database - List of indicators

Indicators per country for 23 countries
• Total amount of investment or CAPEX (Capital Expenditures)
• Amount of CAPEX per market segment (fixed, mobile)
• CAPEX/sales (gross revenues of operators analyzed), if applicable
• CAPEX/retail telecom service revenues, if applicable

Indicators per region for 5 regions
• Total amount of investment or CAPEX
• Amount of CAPEX per market segment (fixed, mobile)

Data
• Historical data 2008-2012

Data conversion
• Country data was converted into euros (EUR).
• Exchange rates (average 2012 exchange rate according to the
International Monetary Fund or IMF) are specified in the tab entitled "exchange rates" and were applied throughout the period

Geographical coverage
• Five main regions Europe, North America, Latin America, Asia-Pacific and Africa-Middle East.

Europe:
• Germany
• Belgium
• Spain
• France
• Italy
• Netherlands
• Poland
• United Kingdom
• Russia
• Sweden
• Switzerland
• Turkey

North America:
• Canada
• United States

Latin America:
• Argentina
• Brazil
• Mexico

Asia-Pacific:
• Australia
• China
• South Korea
• India
• Indonesia
• Japan

Africa-Middle East

Definitions

• Global and per country CAPEX refers to capital expenditure, tangible or intangible, related to business operations. It does not include expenditure related to spectrum or license purchases or renewal, which can reach very high figures:
- For example, in the United States, Verizon Wireless spent 2.8 billion EUR at the end of 2011 for FDD-LTE spectrum.
- Dish Networks acquired FDD-LTE spectrum in the 2.1 GHz band late 2011 for 2.16 billion EUR.
- In Brazil, the regulator ANATEL sold spectrum in the 450 MHz and 2.6 GHz bands to 4 operators for slightly more than 1 billion EUR in mid-2012.

Sources

• The data is based on operators' financial reports for the years analyzed.

Methodology

• CAPEX data per country is calendar data. It was estimated based on operators' quarterly or semi-annual results, with a different fiscal year to calendar year.
• Where necessary, CAPEX estimates were drawn up in proportion to revenue per country and/or segment, or revenue per segment in a given country.
• Regional consolidation for Latin America, Europe and Asia was performed based on data from the countries analyzed. It is based on the share of the market segment of all the countries of a particular region and the region's market share on the global telecom services market, evaluated in the IDATE report entitled "Global telecom services market, " published in March 2013.
• The North America region includes the United States and Canada (telcos only).
• Estimates for the Africa-Middle East region were based on figures from major operators in the area, related to the region's market share per service within the global telecoms services market.

Summary

1. Executive Summary 5
• Key Trends 6
• 2012's strong global CAPEX growth driven by mobile 7
• China, leading investor worldwide; Asia-Pacific, leading region in terms of CAPEX 8
• France is the leading investor among the EU countries studied, just ahead of The United Kingdom 9
• Emerging market countries, CAPEX growth drivers 10
• The options for optimizing investment 11
• CAPEX dynamics of international operators, 2008-2012 12

2. Methodology 13
• Database - List of indicators 14
• Definitions, sources and methodology 15

3. The need for streamlining investment in a tight economic context 16
• A tight macro-economic context 17
• Despite decreasing profit margins, operators are maintaining investment levels to cater for increased traffic 18
• … And moving toward better resource management and new models 19

4. Major CAPEX trends 20
• 4.1. Global CAPEX trends 21
- Since 2009, CAPEX growth in 2012 was stronger than ever 22
- Growth in Mobile Investments 23
- Growth in Fixed Investments 24
• 4.2. Regional CAPEX trends 25
- Overall trends in Europe 26
- Overall trends in North America 27
- Overall trends in Asia 28
- Overall trends in Latin America 29
- Overall trends in Africa and Middle East 30
• 4.3. Ranking countries in terms of CAPEX 31
- Country ranking according to amount of investment 32
- Country ranking according to level of investment (CAPEX/sales) 33
• 4.4. Ranking operators in terms of CAPEX 34
- Telco operator ranking according to investment 35
- Ranking telco operators according to investment efforts (CAPEX/sales) 36
- CAPEX by foreign countries, depending on diverse local conditions 37
• 4.5. The outlook for 2013 38
- The 2013 outlook: positive signals from several major operators in
Europe 39

5. Investment in network infrastructure 40
• Investment in networks 41
• The first option for limiting investment: defer it and leverage other technologies 42
• The Second option for reducing investment: network sharing 43
• Selection of fiber network sharing contracts 44
• The third option for reducing investment: network outsourcing 45
• Originally initiated by Tier 2/3 operators and new entrants for specific functions, outsourcing is now moving toward the core network and full outsourcing 46
• The new wave is attracting larger operators and operators from emerging markets 47
• Are these new business models for networks bearing fruit? 48
• The Bharti example of mobile network outsourcing 49
• Moreover, Bharti is following an insourcing strategy for the fixed segment 50
• An even more ambitious initiative—open access—is becoming the reference model 51

6. Investment: A growth driver for internationalizing the core business 52
• Investment: growth driver for internationalization 53
• Driving growth, the primary goal shared by all operators, is it bearing fruit? 54
• With internationalization, there are as many operational approaches as players 58
• And motivates more and more players from emerging markets 60

Index of Figures and Tables

Executive Summary
• Regional contribution to fixed and mobile CAPEX in 2012 7
• CAPEX growth compared to previous year* 7
• Breakdown of total CAPEX worldwide, in 2012 8
• Breakdown of total CAPEX in the major telecom markets of the EU, in 2012 9
• Breakdown of telco's CAPEX, by type of country (emerging/advanced/BRIC), in 2012 10
• CAPEX dynamics of international operators, 2008-2012 12

Methodology

The need for streamlining investment in a tight economic context
• Slowdown in growth of telecom services markets 17
• Current GDP trends (%, AGR) 17
• EBITDA margins for a selection of operators (%) 18
• "Traffic trap": scissors effect between traffic and revenue 18

Major CAPEX trends
• Fixed and mobile CAPEX worldwide, 2008-2012 22
• Regional contribution to global CAPEX, in 2012 22
• Mobile CAPEX by region, 2008-2012 23

• Growth in mobile CAPEX by region, 2008-2012 23
• Fixed CAPEX by region, 2008-2012 24
• Growth in fixed CAPEX by region, 2008-2012 24
• Fixed and mobile investment in Europe 26
• Contribution of major European countries to CAPEX in 2012 26
• Fixed and mobile investment in North America 27
• Contribution of the two North American countries to CAPEX in 2012 27
• Fixed and mobile investment in Asia 28
• Contribution of major Asian countries to CAPEX in 2012 (%) 28
• Fixed and mobile investment in Latin America 29
• Contribution of major Latin American countries to CAPEX in 2012 (%) 29
• Fixed and mobile investment in Africa and Middle East 30
• Estimated share of the major operators in the Africa-Middle East region 30
• Ranking of the 15 top countries according to CAPEX in 2012 32
• Share of mobile investment in total CAPEX 32
• CAPEX/sales ratio for certain countries, 2008-2012 33
• Ranking of the top 15 countries according to CAPEX/sales ratio in 2012 33
• Ranking of the top 10 operators according to the level of investment (2008- 2012) and amount of investment in 2012 35
• Level of investment by player category, 2008-2012 36
• Operator ranking in 2012 according to CAPEX/sales ratio 36

• Telefonica's level of investment per region, 2008-2012 37
• MTN's level of investment per region, 2008-2012 37

Investment in network infrastructure
• CAPEX accumulation illustrated by Swisscom 41
• Selection Of Fiber Network Sharing Contracts 43
• Selection of network outsourcing contracts 45
• Types of contract 49
• Key financial data for Bharti mobile, India and South Asia 49
• Key financial data for Bharti Telemedia (fixed broadband, billion INR) 50
• Growth in Bharti Telemedia's subscriber base (thousands of fixed broadband subscribers) 50
• The three layers of the City-net model in Amsterdam 51
• Major national FTTH/B programs worldwide 51

• EBITDA margins, 2008 and 2012 (%) Advanced market operators vs. emerging market operators 54
• Revenue comparison, non-current liabilities, Telefónica's EBITDA margin 55
• Revenue comparison, non-current liabilities, América Móvil's EBITDA margin 55
• Comparison between ARPU levels and EBITDA margins per country for ARPU
<5 USD in 2012 56>• Comparison between ARPU levels and EBITDA margins per country for ARPU between 5 and 10 USD in 2012 57

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