Omdia view
Summary
Omdia recently published its inaugural Global Telecoms Opex Tracker (see Further reading), a detailed database of telco operating expenditure (opex) from 2019 to 2022. Omdia will update and publish the database yearly.
The tracker covers the top 10 service providers globally by revenue. It combines a top-down and bottom-up approach, using quantitative and qualitative data from service providers’ financial reporting, press releases, and presentations to inform our estimates of opex allocation.
The opex for these top 10 communication service providers (CSPs) was aggregated, scaled up, and adjusted to create global estimates for telecom industry opex allocation. The spending by the top 10 CSPs corresponds to roughly 50% of Omdia’s global opex estimates.
The opex estimates are divided into categories and subcategories (see Figure 1). The first breakdown level is network opex (48%) and non-network opex (52%). The largest categories in the second level of breakdown are:
- Network operations
- Sales, marketing, and customer service and support (SM CSS)
- Network depreciation and amortization (D&A)
- Devices
Some second-level categories are further divided into subcategories, as Figure 1 shows.
Figure 1: Global telecoms opex allocation, 2022
Source: Omdia
Managing opex is arguably more important than capex
Telco industry profitability is under pressure because of slow revenue growth and high expenditure requirements to satisfy the rapidly growing demand for data. Omdia expects future revenue growth to remain relatively low, so telcos must focus on cost efficiencies to improve profitability.
Opex is much larger (4–5 times) than capex for a typical telco, so efficient management of opex is key to financial performance. Many recent announcements from telcos have involved cost-optimization strategies and opex transformation programs. Helping CSPs reduce opex is becoming an important opportunity for their technology suppliers.
The new database enables comparisons of opex for each of the top 10 telcos (and the industry overall) over time from 2019 to 2022. Some takeaways from the data include:
- Total telecom industry opex grew 3% in 2020 and 2021, but growth slowed to 1% in 2022. Adjusted opex (excluding D&A and one-off charges) rose 3%, 4%, and 1% in 2020, 2021, and 2022, respectively.
- Among the 10 telcos Omdia analyzed, China Mobile and China Telecom had the highest opex growth in 2022.
- Per China Mobile’s Annual Report 2022, thanks to “new infrastructure projects and increased transformation-related investments,” network operations drove China Mobile’s high opex growth and devices as sales of handsets, ICT equipment, and other smart devices increased significantly.
- Increased IT and the cloud drove China Telecom’s high opex growth as the company boosted initiatives in its Industrial Digitalization—cloud, big data, artificial intelligence (AI), digital platforms, and security services, among others—and Smart Family areas. Devices opex also rose thanks to increased mobile handset sales volume in 2022.
- Vodafone, AT&T, and NTT had the lowest opex growth in 2022. For Vodafone and AT&T, this was largely related to divestments (Vantage Towers and Warner Media, respectively). NTT’s opex rose 6% in local currency units thanks to increased personnel expenses from expanding its global solutions business segment and increased sales-related costs. However, it fell in US dollars because of the yen’s appreciation to the dollar over 2022.
- The industry’s average adjusted opex/revenue was 67% in 2019. This rose to 69% in 2022. Reported opex/revenue (including one-time items and D&A) grew from 84% to 89% over the same period.
- Among the 10 companies analyzed, NTT (75%) and China Telecom (73%) had the highest adjusted opex/revenue in 2022. Omdia’s measure of adjusted opex excludes depreciation and amortization as well as one-off charges such as asset write-offs and restructuring costs. Vodafone (48%), America Móvil (60%), and Deutsche Telekom (60%) had the lowest adjusted opex/revenue among Omdia’s sample of companies. Note: Vodafone’s low adjusted opex/revenue (hence, high adjusted EBITDA margin) relative to its peers reflects the fact that its reported EBITDA includes its share of profit from minority-owned subsidiaries (Vodacom Congo, Egypt, etc.) and joint ventures (Australia, India, etc.). However, its reported revenue excludes the associated revenue from these businesses.
- The proportion of total adjusted opex allocated to devices rose from approximately 13.6% in 2019 to roughly 14.7% in 2022. Devices opex includes the costs of device procurement, subsidizing devices sold to clients, and recycling and disposing of devices. 5G device subsidies contribute to this trend.
- The proportion of total adjusted opex allocated to network operations grew from roughly 26.3% in 2019 to 27.1% in 2022 as spending on network outsourcing increased slightly, but in-house and contracted labor stayed flat.
- Areas where the proportion of total adjusted opex fell between 2019 and 2022 include SM CSS and content, as some telcos improved efficiencies in customer services, and some have moved away from content-related subsegments (e.g., AT&T’s Time Warner).
Appendix
Further reading
Global Telecoms Opex Tracker – Full Year 2022 (October 2023)
“Global Telecoms Capex Trends – 2022” (March 2023)
China Mobile Limited, Annual Report 2022 (retrieved November 2, 2023)
Author
Adam Mackenzie, Senior Analyst, Service Provider Network Evolution
