2023 Telco Capex Guidance – Takeaways from the Top Tier

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Summary

With Vodafone reporting their FY23 results on May 16, all 10 operators included in the Global Telecoms Capex Tracker (see Further reading) have now reported their FY23 or 1Q23 results. Vodafone did not give explicit capex guidance but indicated it would reallocate spending toward customer experience and brand. Deutsche Telekom and Verizon have both guided for significant cuts in capex this year after years of heavy investment in their US mobile networks. In contrast, AT&T expects its capex to only decline marginally as the company continues to invest heavily in fiber broadband. América Móvil, China Telecom, and NTT have all guided for capex increases in 2023.

Collectively, these 10 operators account for roughly 47% of telecom industry capex. The remaining capex is spread among a long tail of smaller operators, many of which are ramping up their 5G mobile spending (e.g., in India). Overall, Omdia forecasts (see Further reading) that global telco capex will grow 1% in 2023, driven by 5G deployments in Asia. This represents a slight acceleration from 0.5% capex growth in 2022 when many operators rationalized budgets due to the impact of inflation.

Capex guidance

Below we discuss the capex guidance and commentary from the recent results presentations of Vodafone, America Móvil, Comcast, and AT&T. These operators collectively account for around 15% of telecom industry capex.

Vodafone

In its FY23 results, Vodafone outlined significant changes in its roadmap for the coming years. New CEO, Margherita Della Valle, stated that in Europe the telco industry has very low return on capital employed (ROCE) and very high capex demands. ROCE has been lower than the weighted average cost of capital (WACC) for over a decade, which has negatively impacted shareholder returns. In its fiscal year ending March 2024, Vodafone plans to reallocate investment toward customer experience and brand. The company will spend $162m and $108m on those areas, respectively. Vodafone will also allocate its capex to regions with better ROCE. As part of its digital transformation, Vodafone plans to use data analytics with machine learning and AI to help optimize capex allocation.

Vodafone also announced plans for 11,000 layoffs in the next three years, representing 12% of its total workforce.

América Móvil

In 2022 América Móvil spent $7.9bn out of a planned $24bn capex budget from 2022 to 2024. The company initially guided for $8.0–8.2bn capex in 2023, an increase of 1–4% from 2022. However, in the 1Q23 earnings call, CEO Daniel Hajj Aboumrad stated that the company would increase capex by 4–5% in some countries in 2023. The main reason for this is because the company believes it can take advantage of opportunities to increase its subscriber base and/or ARPU in some markets by investing capex more aggressively, especially on fiber deployment. An additional benefit is that in some of América Móvil’s markets, the local currency has appreciated against the dollar in recent months, which makes spending on imported equipment more cost-effective, thereby reducing the capex burden in local currency. However, the company spends much of its current capex on fiber-optic deployment, which includes a significant amount of local currency expense for building and installation of fiber-optic cables underground. América Móvil’s CFO, Carlos Garcia Moreno, estimated that half of its aggregate capex is impacted by foreign exchange rates and half is dependent on local currencies.

Comcast

Comcast did not offer guidance for capex in 2023 but stated that it expects capital intensity (capex/sales) to be 10% this year. In 2022, Comcast’s capital intensity was 9%. Comcast’s 1Q23 capex was $2.6bn, up 43% YoY due to investments to extend the network (the company aims to pass 1 million new households) and increased spending on their “Epic Universe” theme park. Comcast expects the park’s capex to increase by around $1.3bn in 2023 and remain elevated in 2024 before decreasing in 2025 when the Epic Universe Park opens. Comcast plans to spend more on DOCSIS 4.0 in the next two years but has had less pressure to spend on customer premises equipment (CPE).

AT&T

AT&T predicts its 2023 capex will be consistent with 2022 levels (about $24bn). AT&T is continuing to invest in 5G and fiber over 2023 to pursue long-term growth opportunities. In 2023, it will accelerate cost reductions by replacing legacy copper infrastructure with fiber, where possible. Fiber uses less energy than copper and costs less to maintain, requiring fewer service dispatches. AT&T claims to be on track to meet its 2023 financial and operating commitments. However, if the macroeconomic situation worsens, the company says it can accelerate cost transformation actions, be more deliberate with its capital spend, or increase liquidity (i.e., squeeze more cash out of the business). It is unclear why AT&T would not complete its cost transformation more quickly if it is able to, but there may be increased risk in changing things too fast.

Table 1 summarizes the capex guidance of the operators discussed above in addition to China Mobile, China Telecom, Deutsche Telekom, NTT, Softbank, and Verizon.

Table 1: Capex guidance from selected operators (sorted by 2022 capex)

Source: Omdia

Figure 1 shows the expected change in capex in 2023 versus 2022 based on company guidance. Deutsche Telekom is expecting the sharpest decline in capex followed by Verizon as spending in their US mobile businesses is reduced. AT&T’s stable capex reflects its ongoing investments in fiber broadband. NTT stands out for its capex growth, though this is related mainly to IT services not telecom infrastructure.

Figure 1: Change in capex in 2023 vs. 2022 based on guidance Source: Omdia

Omdia forecasts global telco capex to grow in 2023 despite headwinds

Of the 10 operators reviewed, three indicated capex would increase in 2023, four that it would fall, and three did not provide guidance on total capex. These 10 operators collectively account for around 47% of telecom industry capex. There is a long tail of smaller operators that comprise the rest of industry capex. One trend we see in 2023 is that some operators are bringing forward their capex to capitalize on business opportunities or improve efficiencies, and this will contribute to slower capex growth in 2024. Despite the weak guidance of certain companies such as Deutsche Telecom and Verizon, overall, Omdia forecasts that global telco capex will grow 1% in 2023, despite the backdrop of ongoing telco revenue decline. This represents a slight acceleration from 0.5% capex growth in 2022 when many operators rationalized budgets due to the impact of inflation.

Within the overall capex budget some categories have healthier prospects than others. Omdia segments telecom capex into eight major categories – civil infrastructure, access network, transport, core, cloud infrastructure, IT and software, devices, and CPE. We expect growth in fixed access network capex to be driven by passive optical networking (PON), and in IT and software to be driven by 5G automation and customer experience. Conversely, we predict mobile radio access network capex will decrease in 2023. Further capex forecast analysis is available in An Analysis of Telco Capex: Revenue Realities and Capital Intensity Strategies (see Further reading).

Appendix

Further reading

Global Telecoms Capex Tracker ‒ Full Year 2022 (April 2023)

Communications Provider Revenue and Capex Forecast: 2023-28 (May 2023)

An Analysis of Telco Capex: Revenue Realities and Capital Intensity Strategies (June 2023)

Author

Adam Mackenzie, Senior Analyst, Service Provider Network Evolution

[email protected]