Telecommunications Network Operators: 3Q19 Market Review

Telecommunications Network Operators: 3Q19 Market Review
Telcos curb capex spending as global revenues decline for fifth straight quarter
By Subramanian Venkatraman and Matt Walker

This market review provides a comprehensive assessment of the global telecommunications industry based on financial results through September 2019 (3Q19). The report tracks revenue, capex and employee for 131 individual telecommunications network operators (TNOs). For a sub-group of 40 large TNOs, the report also assesses labor cost, opex and operating profit trends. Our coverage timeframe spans 1Q11-3Q19 (35 quarters). The report’s format is Excel.

ABSTRACT

The global telecom industry continues to be constrained at the top line. Single quarter revenues declined YoY by 0.6% in 3Q19, to $450B marking its fifth consecutive quarter decline. Third quarter capex also declined by 2.4% from 3Q18 to $73B. Annualized capex thereby declined by 1.7% to $300B in 3Q19. Telco spending on employees, or labor costs reached $295B in 3Q19 on an annualized basis, up 0.4% from the 3Q18 figure.

Telcos are beginning to deploy 5G and invest in the media business, but most are doing so cautiously as recession warnings are growing. On October 14, the IMF downgraded expectations for 2019 and said the macroeconomic outlook remains “precarious.” Recessions tend to hit telco revenues hard. A slowdown in telco revenues result in both additional layoffs and a slower growth rate in 5G spending. Few telcos have room in their budgets for a 5G capex splurge. Telco profit margins remain tight, nothing new for the telecom industry. Operators are getting more concerned about debt, though, and more interested in open networking, cloud partnerships, asset spinoffs, and other tactics to reduce capex requirements.

Key findings of our 3Q19 “Market Review” include:

1) The long-term revenue growth rate of the telecom sector is in the 0% to 2% range, after adjusting for currency translation. In 3Q19, single-quarter revenue dropped by 0.1% YoY on a fixed exchange rate basis. Actual revenue growth in 3Q19 was lower, down 0.6% YoY to $450B. Both figures are slightly below the sector’s long term growth range.

2) Even the modest growth currently achieved by the telecom sector requires high levels of capital investment in networks. The industry’s long-term capex to revenue ratio (capital intensity) is in the 16-17% range, on average (16.5% in 3Q19, annualized). Telcos also use M&A to expand into adjacent markets; AT&T-Time Warner is just one example. The debt from such deals can drive up the operator’s interest payments and make it harder to fund capex, however. Such deals also inevitably come with layoffs.

3) On a revenue per employee (RPE) basis, the telco sector has been stagnant since 2011: the annualized figure was $362K that year, and the average figure for the last four quarters was $351K. Labor costs per employee, on an annualized basis, were flat in 3Q19 at $56.6K.

4) Telcos employed 5.1 million people in 3Q19, in line with recent quarters. Total headcount has not varied much since 2011 as telcos have focused instead on reshaping their workforce – cutting field engineers and installers, and hiring software developers, for instance. We expect employee totals to begin declining in the next 1-2 years. India alone may cut up to 100K employees in that timeframe, due to Jio’s consolidation & BSNL reforms.

5) Annualized capex for 3Q19 was 16.5% of revenues, at the same level compared to 3Q18. Single quarter capex declined 2.4% YoY in 3Q19 to $73B. The decline in capex was slightly worse than the decline in revenues. In mid 2019, we had expected capital intensity to grow towards 17% by end of the year, but telco concerns about spectrum costs, supply chain dislocations and recession worries have moderated the outlook.

6) The M&A climate remains strong for the sector in 2020. Many telcos see their core markets declining, and are buying their way into other markets while also streamlining their asset base. Noteworthy recent deals include the merger of T-Mobile and Sprint, Comcast’s acquisition of Sky, the merger of Vodafone India and Idea Cellular; and Vodafone’s $18B acquisition of Liberty Global’s Germany and Eastern Europe cable and broadband assets. All eyes are set on the much talked about merger of Sprint and T-Mobile, which will result in the combined entity to become the second largest mobile operator in the US. However, after the M&A deal paperwork is signed, integrating operations and actually achieving synergies continues to be a challenge for telcos. Managing the debt from these acquisitions is just as hard, as AT&T and others are discovering.

7) Telco industry operating margins have been very stable for the last 11 quarters, hovering at around 13.7%, on an annualized basis. Single quarter operating margins in 3Q19 were down slightly in 3Q19, to 15.3% from 15.5% in 3Q18. The small decline is partly due to ongoing pressure on staff costs, which grew from 22.3% of annualized opex (ex-DA) in 3Q18 to 22.8% in 3Q19. In order to grow margins, many operators plan layoffs or similar workforce restructuring (e.g. voluntary retirement). At the same time, telcos are hiring in new technical areas (e.g. SDN) and are always hiring salespeople. On a per-employee basis, the global average for labor costs (on an annualized basis) in 3Q19 was $57k, stable versus 3Q18. As 5G approaches, telcos will see their sales & marketing costs grow. They will continue to look for ways to reduce the labor cost component of customer acquisition & retention costs (CAC and CRC), through both technology investments & business partnerships.

Table Of Contents

  1. Abstract
  2. Market overview
  3. Single-company drilldowns
  4. Revenue and capex by country
  5. Key stats through 3Q19
  6. Operator rankings
  7. TNO-131: Revenue, capex and headcount for 131 TNOs
  8. TNO-40: Cost breakdowns for 40 large TNOs
  9. Subs & traffic
  10. Exchange rates
  11. About (including methodology)

Figure & Charts

1) TNOs: Annualized revenue ($M) and YoY growth (%), 3Q14-3Q19
2) TNOs: Annualized capex ($M) and capital intensity (%), 3Q14-3Q19
3) Labor cost/revenue (%), 2018
4) Labor cost and labor cost per employee, 2018 YoY change (%)
5) Change in annualized operating margins (YoY percentage point difference 3Q13-3Q19)
6) Local currency value vs. US$ (QoQ change)
7) Top 20 share of the market, 3Q19
8) Top 20 TNOs by total capex, 3Q19
9) Top 20 TNOs by total revenue, 3Q19
10) TNOs: YoY growth in single quarter revenues
11) TNOs: Annualized capital intensity, 3Q11-3Q19
12) TNOs: Revenue and RPE, annualized 3Q14-3Q19
13) TNOs: Capex and capital intensity (annualized), 3Q14-3Q19
14) TNOs: Total headcount trends, 3Q11-3Q19
15) TNOs: Revenue and RPE trends, 2011-18
16) TNOs: Capex and capital intensity, 2011-18 ($ Mn)
17) TNOs: Capex and capital intensity, 3Q14-3Q19 ($ Mn)
18) TNOs: Revenue and RPE trends, 3Q14-3Q19
19) Top 40 TNOs by total opex, 3Q19
20) Top 40 TNOs by labor costs, 3Q19

Coverage

Countries
Argentina Finland Japan Norway Taiwan
Australia France Kenya Oman Thailand
Austria Germany Kuwait Philippines Turkey
Bahrain Hong Kong Luxembourg Poland UAE
Brazil India Malaysia Qatar UK
Canada Indonesia Mexico Russia USA
Chile Israel Morocco South Korea
China Italy Singapore Spain
Denmark Netherlands South Africa Sweden
Egypt New Zealand Saudi Arabia Switzerland

 

Companies
A1 Telekom Austria Cincinatti Bell Hathway Cable & Datacom Limited PLDT TDS
Advanced Info Service (AIS) CK Hutchison Idea Cellular Limited Quebecor Telecommunications Tele2 AB
Altice Europe Clearwire Iliad SA Reliance Communications Limited Telecom Argentina
Altice USA Cogeco KDDI Reliance Jio Telecom Egypt
America Movil Com Hem Holding AB KPN Rogers Telecom Italia
AT&T Comcast KT Corporation Rostelecom Telefonica
Axiata Consolidated Communications Leap Wireless Safaricom Limited Telekom Malaysia Berhad
Axtel Cyfrowy Polsat LG Uplus Sasktel Telenor
Batelco DEN Networks Limited Liberty Global Shaw Communications Telia
BCE Deutsche Telekom M1 Singtel Telkom Indonesia
Bezeq Israel DirecTV Manitoba Telecom Services SITI Networks Limited Telkom SA
Bharti Airtel Limited Dish Network Maroc Telecom SK Telecom Telstra
Bouygues Telecom Dish TV India Limited Maxis Berhad Sky plc Telus
BSNL DNA Ltd. Megafon SmarTone Thaicom
BT Du MetroPCS Communications SoftBank Time Warner
Cable ONE, Inc. EE Millicom Spark New Zealand Limited Time Warner Cable
Cablevision Elisa Mobile Telesystems Sprint TPG Telecom Limited
Cellcom Israel Entel MTN Group StarHub True Corp
CenturyLink Etisalat MTNL STC (Saudi Telecom) Turk Telekom
Cequel Communications Fairpoint Communications NTT SureWest Communications Turkcell
Charter Communications Far EasTone Telecommunications Co., Ltd. Oi Swisscom Veon
China Mobile Frontier Communications Omantel Taiwan Mobile Verizon
China Telecom Globe Telecom Ooredoo Tata Communications Limited Virgin Media
China Unicom Grupo Clarin Orange Tata Teleservices Vivendi
Chunghwa Telecom Grupo Televisa PCCW TDC Vodafone
Vodafone Idea Limited Wind Tre Windstream Zain Zain KSA

Visuals

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