A Weekend Warrior’s Guide to Capex Reduction
As a recreational athlete, I’m by default a numbers guy. Being a wee bit past my prime competitive years, those numbers don’t look quite as good as they used to. For example, I know that my rate of decline in a 10K running race is approximately 4 seconds slower per klick per year. This motivates me to become more efficient. With my training. With my nutrition. With my body mechanics. I want to get as much from my aging athlete’s body as I can!
You’ve probably guessed where I’m going with this. Operators universally strive to “sweat” as much from their networks as possible. Consider a key metric found in many operator financial statements: Capex-to-Sales ratio. It’s an indicator of how efficient an operator is at translating network investments (approximately 80% of overall Capex) into revenue. From my reviews of operator financials, I typically see this number in the 13-20% range, with a mean of ~15%. Compare this to Retail (4%), Transportation (8%) and Pharma (6%). The Communications sector leads the pack.
Sure, we all know that Telecom is Capex-intensive. This just puts a number on it. But there are further pressures on operator balance sheets. Most operators cannot maintain the required investments in their networks with cash from operations alone (as evidenced by declining EBITDA margins), so they pile on debt. This becomes a vicious cycle. Proceeds from bond sales yield more working capital, but debt service requires free cash. What’s the best way for an operator to increase free cash flow in the business? Reduce Capex! And around and around we go.
Hence it becomes imperative for operators to seek innovative ways to address seemingly contradictory goals – reducing their Capex burden, while supporting increased bandwidth demands and new product/service rollouts. For this I advocate turning to the numbers. For example, do you have a metrics-driven understanding of:
- Your asset utilization rate?
- Which deployed assets have not carried traffic in the past 60 days?
- Mean time from asset purchase to revenue contribution?
- Sparing levels vs. industry best practices?
- Detailed asset movement history for assets in your mobility RAN?
- % alignment between your fixed asset register or ERP and your network?
An asset assurance program addresses these questions and many others to drive measurable improvements in Capex efficiency. One final point—there is change looming on the horizon in the form of large scale network transformation programs. These programs are only accelerating Capex pressures on operators. I will explore this topic in my next post. Right now I’ve got my running shoes laced-up and I’m headed out the door. I’ve got to get my numbers back on track!
Portfolio Head – Network Analytics
Andy has 20+ years of experience in engineering management, business operations and IT, primarily with Tier 1 operators including Level 3, MCI and GTE. His responsibilities included leading IT development teams that built mission-critical network management, provisioning and inventory systems with thousands of users. Prior to joining Subex, Andy was a Senior Manager overseeing a Data Governance organization at a major Internet Services provider. Andy graduated from the University of Pennsylvania with degrees in Electrical Engineering and Economics (Wharton). He holds an MBA from the University of Colorado.