Economic Downturn Leads Carriers to Reduce Capex Spending

In financially challenging times, when service revenues dip due to reduced end-user confidence, a standard tactic is to cut back on capital expenditure, which boosts operating margins and thereby profits. This tactic was used in the dot.com/3G economic downturn earlier this decade.

Adjusting, sometimes even drastically, capital expenditure plans can demonstrate to investors appropriate financial "housekeeping" practices. Operators can also resort to a number of alternative strategies to make their capex dollars go further.

"Subscriber growth may be flattening and carriers are facing tougher credit conditions from financial institutions, but the need to upgrade infrastructure and install new equipment will not go away," comments ABI Research vice president Jake Saunders. "Competitive pressures are putting the thumbscrews on carriers to introduce innovative applications and services such as music downloading, mobile TV, and social networking."

Furthermore the amount of traffic generated from voice, messaging, emails, games, content downloads, mobile Internet access, video streaming and other services is growing dramatically. The introduction of the Apple iPhone 3G and other devices such as SamsungĂ's Omnia and RIMĂ's Bold have transformed the end userĂ's mobile Internet browsing experience; they have also resulted in a substantial delta to the average amount of data downloaded per user.

In 2007, global capital expenditure by carriers stood at US$131 billion. Despite the worsening credit crisis, 2008 will still notch up capital expenditure of US$142 billion, or 8.3% year-over-year. ABI Research forecasts that 2009 is likely to show a reduced capex growth rate of 7%.

Base stations still account for the lionĂ's share of capex spending (49.5%), driven by coverage and infill base-station build-out, followed by backhaul (19.2%) and the core network (15.7%), including Mobile Switching Centers, Media Gateways, etc.

Carriers can cool off and delay capital expenditure tasks which do lighten the load on the financial bottom line, but only for so long.

Posted to the site on 28th October 2008