European carrier capex seen up 13% in 2006 at EUR 60 bln

bealtine

Capital spending by European network operators is expected to grow 13 percent this year to EUR 60 billion, according to market researcher Infonetics. Spending in 2006 will increase primarily on broadband wireless and wireline services. The share of spending by mobile operators will fall as 3G upgrades are already well underway, while voice spending will lead the increase in investment. European service providers spent 15 percent of their revenue on capex in 2005, a trend that is expected to continue this year. Competitive and cable service providers upped their capex significantly in 2005 (20%), but will reverse the trend in 2006 (-2%), while incumbent carriers are steadily increasing capex (up 10% in 2005 and 18% in 2006).

eircomtribunal

bealtine wrote:

European service providers spent 15 percent of their revenue on capex in 2005, a trend that is expected to continue this year. ... while incumbent carriers are steadily increasing capex (up 10% in 2005 and 18% in 2006).

With 233 million capex and 1.693 million revenue, eircom would spend 13.76% of its revenue on capital investment, which is lower than the EU average, contradicting Eircom's claim that they spent more than the average on capital investment.
But it would not be that significantly lower, as the comparison of the much higher depreciation compared to the investment would suggest.

P

jwt

In the midst of all this you have to take into account the pre-existing state of the network.

Other telcos have been investing at a pretty steady rate to maintain (it may be more or less than the depreciation but not by much).

Hence their average spend of 15% of revenue is to maintain a network that's in reasonable condition.

In eircom's case there has been years of under investment resulting in a network that has degraded to a significant level.

Thus eircom returning to a normal level investment does not mean that the network is in comparable shape to other telcos.

Imagine two taxi drivers who own their own cars.

One has maintained it, serviced, tyres, brakes, washed and polished for the last 3 years.

The other has neglected his car, only had the occaisional service, the tyres are bald, the engines knocking, smoke from the exhaust and the bodywork is starting to rust.

All of a sudden the second taxi driver starts to match the first in spending and care and attention, washing it, servicing it replacing tyres.

The second car is still in worse shape, requires more money spent on it in repairs etc.


John

eircomtribunal

Deprecation and investment across the big lake:

I was however shocked when... that SBC’s DSL coverage is only 76%, after hearing for years they were past 80%. Verizon is equally far behind claims. This led me to lie to the Chairman of the FCC, giving him an estimate of homes unserved about 25% too few. The latest FCC data are much more accurate, and make clear the key obstacle in achieving “affordable broadband for all in 2007” is the asset stripping of the telcos about to sell millions of lines. West Virginia is 43% unserved, New Hampshire 35%, Maine 30% - all states the Dionne Searcy and Peter Berman report Verizon is selling. SBC’s capital spending is currently only 70% of depreciation. Unless you believe they have $15B in capital equipment that should be written off, that means they aren’t even maintaining their network.

What does Dave Burstein, from whose DSLprime newsletter I quoted the above, mean with the last sentence?
P.

Altreab

"SBC’s capital spending is currently only 70% of depreciation. Unless you believe they have $15B in capital equipment that should be written off, that means they aren’t even maintaining their network."


When a company buys ANYTHING that lasts more than an accounting year it HAS to be depreciated to reflect its true value on the date of the accounts.

He is saying that by having capital spending at 70% of depreciation the network has to be in decline unless you believe that at some stage the company bought equipment that they will never use, but which has to be depreciated on the accounts.
Something like a telco buying 10,000 Lorries when they will never use more than 100 at a time!!