Where is the Capex going?

Hardware is anything inside a computer that can be thrown out of the window.” That is a running joke in the tech industry.

VoicenData Bureau
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Telecom Infrastructure

As telcos across the world alter their Capex spending, does it signal a permanent shift, reflecting broader strategic transformation amidst new challenges?


“Hardware is anything inside a computer that can be thrown out of the window.” That is a running joke in the tech industry. And the maxim has held true. The shifts from mainframes to clients, from huge IT departments to outsourcing, from on-premise to Cloud—these pivots have been possible only because something is ‘detachable’, if not exactly ‘throw-able’.

Worldwide telecom Capex is likely to drop 7% by 2025 from the 2022 levels with operators spending about USD 7 billion less, nearly USD 93 billion in 2025.

Incidentally, as telcos enter stormy waters or set sail for new horizons, their heavy ships are also bringing a lot of iron and piling them on the deck. From towers being outsourced to the move towards small cell sites to a thinner Capex purse—a lot of iron is slowly being slipped away from the deck, silently finding its way out of the ship. Maybe it is a maneuver to make the ship light enough to swim in tough patches? Maybe it is just spring cleaning to make way for a new kind of metal? Or maybe it is just a ‘wait and watch’ interlude? So why is the Capex going down, and is it from the Starboard side or the Port one?


Capex Dips, Telco Flips

A glance at some guidance and announcements in the telco corridors hints at the new graph Capex is taking here. When Verizon shared its capital expenditures for 2024, it etched a downward slope, showing a substantial reduction from USD 23.1 billion in 2022 to

USD 18.8 billion in 2023 to about USD 17.0 billion and USD 17.5 billion in 2024.


Analyst firm Fitch also looked at Verizon under its microscope and hinted that the Capex should decline in 2024 as peak C-band spending further subsides. Then there is BT Networks which is removing legacy equipment and simplifying its network to improve operational efficiency, save costs, and underpin its future network innovation, as analysed by Omdia.

In 2023, Vodafone had shared intentions to reallocate spending toward customer experience and brand. Deutsche Telekom and Verizon also guided for significant cuts in Capex that year, following heavy investment in their US mobile networks. Of course, there were others like AT&T with only a marginal decline in Capex and with aims to invest heavily in fibre broadband, América Móvil, China Telecom, and NTT that guided for Capex increases in 2023.

Omdia also pointed out how NTT stands out for its Capex growth, but this is related mainly to IT services, not telecom infrastructure.


Ashwinder Sethi

“Operators globally are in a state where they want to limit Capex as much as possible because of falling revenues and flattening ARPUs.”- Ashwinder Sethi, Partner, Analysys Mason

As seen in a recent report from Dell’Oro Group, the sum of wireless and wireline telecom carrier investments, experienced a slowdown in growth during the first half of 2023. It pointed out that conditions are expected to remain challenging in 2024 before stabilising in 2025. Worldwide telecom Capex is projected to drop 7% by 2025, relative to 2022 levels. Looks like, operators will spend about USD 7 billion less, or around USD 93 billion, in 2025.


On one hand, we expect global data consumption over telecom networks to nearly triple, from 3.4 million petabytes (PB) in 2022 to 9.7 million PB in 2027, but on the other, there is little to no pricing power for providers on increasingly commoditised connectivity and data services. This shows that revenues from Internet access will drive only a modest four per cent CAGR to USD 921.6 billion through 2027.

More findings from PwC’s inaugural Global Telecom Outlook explain how historically, the waves of capital spending on successive generations of mobile network technology—4G and 5G—have come in ten-year cycles. Total telecom Capex rose 4.2% in 2022 to USD 319.1 billion, which was larger than any historic or forecast year in ten years. Looking ahead, however, PwC expects the growth rate in both fixed broadband and mobile broadband investment to decline every year through 2027.



“Telcos often view outsourcing of capital infrastructure and hardware as a means to cut costs, improve efficiency and achieve flexibility in scale.”- Priyanka Kulkarni, Manager – Telecom, Media and Technology Sector, Aranca

Telcos are also busy wrestling with Hyperscalers which showed significant growth in 2023, while telco earnings went downwards, and faced tight enterprise budgets. A Futuriom report notes that hyperscalers continue to spend more as a group than the telcos, even as both camps are reducing overall Capex.

Less Revenue, Less Capex, Less Assets?


Could all this be related to pressures on revenue in some way? Well, in the fourth quarter of 2023, Verizon did show a decline in operating revenue that was attributed to a 2% decrease in wireless equipment revenue, according to industry observers. As telco test and measurement supplier Spirent also explained in a warning: “The telecommunications market is extremely challenged at this time, with Spirent’s largest customers delaying their expenditure and technology investments.”

In the reckoning of Ashwinder Sethi, Partner, Analysys Mason, all operators globally are in a state where they want to limit Capex as much as possible. “This is because of the fall in revenues and flattening of ARPUs in many parts of the world along with a rigorous focus on cost optimisation for both Opex and Capex. Telco players were holding back in 2023 but the general trend towards minimising Capex is underway. In mature markets, 60%-70% of sites are 5G capable now. As a lot of 5G deployment happened in 2021-22, the year 2024 will see a lot of stabilising effect of 5G.”

Vodafone Group CEO Margherita Della Valle also stated during FY23 results that in Europe the telcos have very low return on capital employed (ROCE) and very high Capex demands.

As to India, we are still at a lag of two years as the majority of 5G work began in 2022. “By the end of this year or 2025, nearly 80% of the 5G network would have been rolled out, with a lot of stabilisation kicking in, especially with Airtel and Jio having covered their 5G paths. We are moving from a 35% capital intensity level to 25% this year. Since 5G is done and 6G is still away, there is no new area for Capex investments.” Sethi augurs.



“A majority of the telco spend happens in RAN, especially with 5G and that explains why in Europe and the US their Capex was slightly lower last year.”- John Strand, CEO, Strand Consult

As reasoned by advisory firm Futuriom, the reduction in Capex by telcos has marked a general slowdown in revenue among leading carriers during the first half of 2023. The reasons for the reduction in revenue are many and it is hard to miss how the companies continue to digest their heavy investments in the massive 5G rollout of 2021 and 2022. The hype of the 5G revolution did not exactly open any floodgates of revenue that telcos were hoping for. So, the slowdown could persist through 2024 and a lot hinges on how and when 5G-related technologies like network slicing will materialise in services.

Is that the new industry reality then: An asset- light telco?

Industry analyst and CEO of Strand Consult John Strand argues that the asset-light model already exists and is called an MVNO. “We are talking about companies that rent capacity on mobile operators’ networks. These players have never gained a very large market share and they have not been able to differentiate themselves on anything other than price.”

In an increasingly competitive environment, a complete asset-light strategy may lead to a loss of control for telcos and possibly higher long-term variable costs.

But where exactly are the assets taken away from? Which parts of the ship are easy, and worth, dismantling?

Sethi explains this new path with a dissection of the typical Capex spend of any telco. “About 50% goes in RAN, 20%- 22% in fibre and microwave areas and 10% in core. A majority of the spend happens in RAN, especially with 5G and that explains why in Europe and the US last year, the Capex was slightly lower than previous years.”

In Strand’s reckoning, by far the biggest cost for an MNO is sales and marketing costs. “Capex is about 12%-13% of an operator’s revenue. Of this amount, RAN amounts to 10%-15%, which means that the largest costs, excluding sales and marketing, are costs for those who set up the equipment, rent of land for mobile phone masts and costs for electricity.”

Less Assets, Less Headaches?

More New Headaches?

Network infrastructure, hardware and equipment management, customer support, billing and so on are areas which have been typically outsourced, explains Priyanka Kulkarni, Manager – Telecom, Media and Technology Sector, Aranca. “The rollout of 5G and fibre networks has been the key drivers of Capex from telcos in the recent past. These initiatives are nearing completion in most of the major markets. Consequently, Capex spending has slowed down at a global level. For instance, in the US, Capex is expected to decline 10%, while in EMEA, it is projected to reduce from 21% of revenue in 2021 to about 17% in 2024.”

Strand offers some interesting examples. “We have operators such as TDC (in Denmark) and TIM in Italy that are split into an infrastructure company and a service company. The TIM case is new while the TDC case is a few years old. TDC’s split into an infrastructure and a service company is a commercial disaster.”

Let us not forget that a reduced Capex pattern is not a sign of an asset-light model, Sethi reasons. “While many players are going for small cells, new tower approaches and fibre deployments, it will not be correct to say they are leaning more towards software. At the end of the day, telecom is a capital-intensive business. You cannot move away from infrastructure and hardware. Even if we think of O-RAN, software ultimately runs on some hardware. Software may increase its footprint in telcos but that is another form of Capex since most vendors will charge them in a fully-loaded way.”

Kulkarni distils that in the recent past, an asset-light strategy was considered an enabler for telcos to reduce costs and focus more on their core offerings such as service delivery. “However, in an increasingly competitive environment, telcos are realising the importance of having a strategic differentiation in their approach towards asset management. A completely asset-light strategy tends to result in loss of control and possibly higher variable costs over the long term.”

As to whether leaner models, where telcos focus only on their core service area, work well or not, Kulkarni points out some challenges telcos need to confront. “Mobile virtual network operators and cloud service providers are good examples of lean models. This approach, however, has a few issues. Firstly, narrowing the service portfolio has a direct implication on revenue streams, which may be impacted in the long term. Secondly, customers nowadays often expect bundled offerings. A telco with a lean model may not be able to cater to such requirements, leading to reduced customer satisfaction.”

She also pointed out that a lean model may deprive a telco of the potential synergies that can arise between core and non-core assets. “For example, 5G deployment can be expedited if a telco owns its fibre network.” In her opinion, instead of adopting a lean model by default, a telco needs to maintain a fine balance and continuously review the portfolio to ensure its approach aligns with its long-term vision.

Some of Europe’s indebted telecom operators have begun to explore long-term tower leases and selling off infrastructure assets. In the last few years, Europe has seen massive growth in the number and size of independent tower companies that have acquired infrastructure assets from mobile network operators (MNOs) willing to outsource passive mobile networks. This covers the transmission towers, antennas and associated real estate. However, analysts have also shown concerns about loss in operating and strategic flexibility and control with this tower outsourcing.

What is More? What is Ahead?

According to a Strand Consult report, building telecom networks is a complex undertaking with many considerations, including the need to manage cash flow in the short and long term, the impact of competition, regulatory requirements for coverage, and so on. Selecting and managing equipment vendors is just one of many critical issues.

Given the global nature of data flows and supply chains, infrastructure has geopolitical implications as well. Also, cellular site rental and energy costs are significant costs for a mobile operator, higher than Capex on RAN.


PwC gives a drone shot of where telcos are pitching their anchors ahead. The likes of T-Mobile US, Rain, Singtel, Vodafone, STC and Orange have built and launched 5G standalone networks but others are investing in neutral host networks. These can be used to provide network access to multiple providers. All this excess capacity can be used by telcos to serve the rapidly growing data centre and cloud computing markets. Many others are exploring synergies through mergers and pooling resources to lighten the burden of investing in the integrated and scalable 5G networks that customers need.

Strand’s advice to telcos is that they should focus on reducing sales and marketing costs. “Make sure you have much spectrum and drive operators as a regulatory player with few employees. This is what Base and E-Plus did in Belgium and Germany about 14 years ago. On top of that consolidate the market like you have done in India. The country is moving in the correct direction right now after operators like Telenor and Vodafone lost billions in India.”

Zooming in Kulkarni captures how the majority of the large telcos, including Bharti, have already rolled out 5G, but have indicated maintaining capex at 14%–15% of revenue next year. “However, going forward, spending is likely to be directed towards pockets of higher demand, as many telcos are facing margin pressure. Capex spending would be driven largely based on adoption rates of 5G and the success of 5G industrial use-cases.”

Worldwide telecom Capex is likely to drop 7% by 2025 from the 2022 levels with operators spending about USD 7 billion less, nearly USD 93 billion in 2025.

She adds that telcos must maintain an asset-right approach to managing their assets. “This implies optimisation of their asset portfolio by divesting non-core assets while maintaining control over critical infrastructure. Globally, even governments and private sector participants, such as private equity investors and tech hyperscalers, are proactively pursuing investments in such strategic assets. Telcos should therefore take advantage of these changing market dynamics and develop their core competencies by adopting an asset-right approach.”

So, watch what you keep and what you pack away in the cardboard boxes. As long as the baby is not thrown away with the bath water, some hardware out of the window does not hurt.

By Pratima Harigunani