Revenue fell 0.4 percent in Q2 to $453 billion. Second quarter Capex recorded 5 percent rise to $72 billion.
Annualized Capex increased slightly to $303 billion in Q2 from $299 billion in Q1 or $302 billion in Q2 2018. The Capex growth was due mainly to China.
Annualized capex for 2Q19 was 16.6 percent of revenues, a little higher than 1Q19 due to a strong second quarter. Single quarter Capex grew 5 percent to $72 billion, after two consecutive single-quarter declines. This increase mainly came from China’s big three telcos, which combined generated Capex of more than $11 billion (+16 percent). The market’s average capital intensity will exceed 17 percent by the end of this year.
Telecoms spending on employees, or labor costs, amounted to $290 billion in Q2 on an annualized basis, roughly flat year-on-year, MTN Consulting said.
Recessions tend to hit telecoms revenues hard. A slowdown in telecoms revenues result in both additional layoffs and a slower growth rate in 5G spending. Few telecoms have room in their budgets for a 5G Capex splurge.
Telco profit margins remain tight. Operators are getting more concerned about debt, though, and more interested in open networking, cloud partnerships, asset spinoffs, and other tactics to reduce Capex requirements, Subramanian Venkatraman and Matt Walker at MTN Consulting, said.
Revenue dropped by 0.4 percent on a fixed exchange rate basis. Actual revenue growth in Q2 was lower, down 0.5 percent year-on-year to $453 billion.
On a revenue per employee (RPE) basis, the telecoms sector has been stagnant since 2011: the annualized figure was $362K that year, and the average figure for the last four quarters was $353K.
Labor costs per employee, on an annualized basis declined year-on-year by 0.2 percent in Q2 to $55.8K. Over the last 12 months, the fastest growing operators on an RPE basis include Omantel, Zain, Reliance Communications, Shaw, and Telenor.
Telcos employed 5.2 million people in 2Q19, in line with 2Q18. “We expect employee totals to begin declining in the next 1-2 years. India alone may cut up to 100K employees in that timeframe, due to Jio’s consolidation and BSNL reforms,” MTN Consulting said.
Noteworthy recent deals include the merger of T-Mobile and Sprint, Comcast’s acquisition of Sky, the merger of Vodafone India and Idea Cellular; and Vodafone’s $18 billion acquisition of Liberty Global’s Germany and Eastern Europe cable and broadband assets.
Telco industry operating margins have been very stable for the last 11 quarters, hovering at around 13.7 percent, on an annualized basis. Net margins vary substantially, impacted by depreciation costs, taxes, debt payments, workforce restructuring, and a whole host of other factors. In order to grow margins, many operators plan layoffs or similar workforce restructuring.
On a per-employee basis, the global average for labor costs (on an annualized basis) in 2Q19 was $56k, down 0.2 percent compared to the year earlier. As 5G approaches, telcos will see their sales & marketing costs grow. They will look for ways to reduce the labor cost component of customer acquisition & retention costs, through both technology investments & business partnerships.
