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Capex spending in telecom companies a poor ROI

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  • Capex spending in telecom companies a poor ROI

    Or - the free market isn't by any means always 'efficient'

    Some key quotes:

    We need to talk about Capex

    There’s an old saying that says ‘what goes up must come down’—but this doesn’t seem to apply to capital expenditure (capex) in the telecoms industry. As Figure 1 shows, global capex levels have soared from just over US$50 billion to about US$325 billion in real terms over the past

    They dipped briefly in the early part of each decade and at the height of the financial crisis in 2009, before resuming their relentless rise. Indeed, total capex levels have only once fallen by more than 5% since 1945.


    Yet this massive investment isn’tproducing the returns the industry requires. We studied the financial performance of 78 fixed-line, mobile and cable telecoms operators with a collective annual capex of some $200 billion, nearly two-thirds of the industry’s total spend last year. (For details of our methodology, see Appendix 1.) Our research reveals that, in the past decade, the average

    long-term return on investment (ROI) has been just 6%—three percentage points less than the cost of the capital itself


    Nearly two-thirds say that capex is driven by technology, not business objectives

    The single biggest factor is use of the wrong investment criteria. Nearly two-thirds of the executives we talked with told us that their capex planning is driven by technological considerations rather than business objectives.

  • #2
    Re: Capex spending in telecom companies a poor ROI

    1.) Wouldn't they want to show a semi-poor ROI in order to prevent complaints about price gouging from the oligopolies in that space?
    2.) Aren't some of their roll outs subsidized / offset by tax credits?
    3.) Don't some of these companies have 4% or 5% dividends on their stock?