This Analyst Opinion covers the major recent developments in telecoms opex and highlights from the latest update of the Global Telecoms Opex Tracker.
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Summary
Omdia recently published Global Telecoms Opex Tracker – 2023 (see Further reading), a detailed database of telecom operator opex from 2019 to 2023. This Analyst Opinion covers the major recent developments and highlights from the tracker. Labor and network utility opex increased in 2023 despite layoffs and AI implementation, although opex fell related to divestments.
Omdia segments opex estimates into the taxonomy shown in Figure 1. The thickness of each bar represents the share of opex allocated to the respective category. To compare operators on a like-for-like basis, we measure opex as revenue minus earnings before interest and taxes (EBIT). Adjusted opex excludes one-off charges and income, depreciation, and amortization.
Figure 1: Global telecoms opex flow, 2023
Source: Omdia’s Global Telecoms Opex Tracker – 2023
Adjusted opex declined 1% as lower expenses on content and network infrastructure outweighed increased network utility costs
Adjusted global telecoms opex fell 1% to $1,294bn in 2023, while revenue grew a modest 1% to $2,002bn. As a result, adjusted opex-to-sales fell to 65%, down just under 1% from 2022. Deprecation and amortization and one-off charges and income totaled $323bn. Including these, opex-to-sales was 81% in 2023, down from 85% in 2022 but in line with the long-term trend (see Figure 2). 2022 was heavily impacted by a $25bn goodwill impairment charge from AT&T.
Content-related opex fell 11% in 2023, continuing the trend of reduction since at least 2019 (when Omdia’s tracking begins) which has been related to divestments in the operator’s content branches as they focus on core connectivity. For example, BT Sports was transferred to WarnerBros as part of a joint venture in 2022, and BT’s opex on TV program rights charges was reduced to zero in 2023. AT&T and Verizon divested from content in previous years, selling WarnerMedia and Verizon Media, respectively. While these divestments may have helped improve the operators' opex-to-sales ratios, they are one-time measures, and do not address the underlying economic issues.
Network infrastructure opex fell 6%, reflecting declines in leasing and interconnection spending. Interconnection costs have fallen due to some reductions in the price charged to use other telcos’ networks related to increased competition, network sharing, and consolidation contributing to reduced interconnection needs. Fiber and 5G have contributed to lower leasing costs as they are more efficient, requiring fewer lines to handle traffic, and thus maintenance costs have decreased.
Figure 2: Global telecoms opex, revenue, and ratios
Source: Omdia
Network utilities and labor opex increased, highlighting continued industry challenges related to AI
Industry-wide opex decreased, but the underlying increases raised concerns. Global labor opex rose $7bn in 2023, despite layoffs from numerous operators (see Figure 3). Telcos are reducing employee numbers, but not by enough to reduce their labor opex. The macroeconomic environment of high inflation and pressure on the cost of living has put pressure on wages to increase. AT&T and Verizon’s labor costs were heavily impacted by high interest rates, which significantly increased the calculation of annual total compensation as they impacted the pension value. In 2023, AT&T’s employee numbers fell from approximately 160,000 to 150,000, but their median employee compensation jumped 31%, from $105,000 to $137,000, and Verizon’s increased 9% over the same period while also reducing total employees. Even without the pension impact, Verizon’s median employee pay would be over $20,000 higher than their 2021 figure.
Figure 3: Labor opex and employment figures at major telcos
Source: Omdia
Increased implementation of AI has been touted by telcos as a solution to rising labor costs and a way to improve efficiency and reduce opex (largely by replacing roles). Omdia has noticed an increase in mentions of AI throughout operator reporting but relatively few examples of exact cost-saving amounts attributed to AI. For example, AT&T’s CEO, John Stankey, said Generative AI has contributed to tangible improvements in cost savings, and the company notes that AI has contributed towards its $6bn cost-saving goal, but it is not clear to what extent. One example was reported by BT, which disclosed that “AI-powered intelligent automation in Openreach now supports leaner operations across our desk and field-based teams, saving us over £35m annually” in their 2023 annual report. This is a positive, but for context, BT’s 2023 opex was £18.6bn.
Network utilities increased by 8% in 2023, which AI likely contributed to. Some of the increase was related to energy price rises in previous years impacting telcos with hedged energy contracts, so some of the effect was lagged. But energy consumption has increased in many of the telcos we track. Interestingly, some telcos have not reported their ESG data yet for 2023 (as of the time of writing), such as AT&T, which reported their 2022 report in June 2023. Telcos will need to weigh up the potential cost-saving benefits of AI against the increased energy costs they will incur.
Appendix
Further reading
Global Telecoms Opex Tracker – 2023 (July 2024)
Author
Adam Mackenzie, Senior Analyst, Service Provider Network Evolution
