Though mobile network capital investments largely have driven global network spending for some years, Dell’Oro Group says investments in fixed networks are growing, while investments in mobile networks are declining, in the first half of 2016.
That is not to say that overall capital investment is dropping. In fact, investment might well continue to grow, in absolute terms. The other important metric is revenue growth that is higher than investment spending.
It probably is not so much the level of investment in networks, but the financial returns from those networks, that is the growing problem.
As much as continual investment in networks is a prerequisite for the access business, especially under competitive conditions, the ability to earn a return on the investments has been getting more difficult.
So there might be very good reasons why tier-one service providers are working so hard to drive down their capital investment and operating costs: they must do so.
In fact, at least one analysis suggests tier-one service providers have not been recovering their cost of borrowed capital for a decade and a half or more.
Researchers at PwC studied the financial performance of 78 fixed-line, mobile and cable operators with a collective annual capex of some $200 billion, nearly 66 percent of the industry’s total spend.
The research found that, over the past decade, the average long-term return on investment (ROI) has been just six percent.
That is three percentage points less than the cost of the capital itself. In other words, operating revenue is not covering the cost of capital.
That might explain negative rates of capital investment growth in recent years, on a global basis.
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