Capital investment improves network performance, gives better returns- Study

The study, carried out by Dr. Raul Katz, President of Telecom Advisory Services, and Director of Business Strategy Research, Columbia Business School, explored the relationship between capital investments in mobile telecom networks and the technical, commercial and financial performance of operators.Dr. Katz performed extensive statistical analysis, across a large set of metrics, on three years […]

The study, carried out by Dr. Raul Katz, President of Telecom Advisory Services, and Director of Business Strategy Research, Columbia Business School, explored the relationship between capital investments in mobile telecom networks and the technical, commercial and financial performance of operators.
Dr. Katz performed extensive statistical analysis, across a large set of metrics, on three years of quarterly data from three different markets — Brazil, Mexico and the United States.
Study demonstrates that investments in network quality translate into better financial returns for operators, not only from cost savings but also from increased revenue. A simulation model was constructed to estimate the effects of increased capital expenditure on mobile operators’ free cash flows, allowing operators to assess the commercial and financial gains attributable to the increased investments.
The study found that a 10 percent increase in capital expenditure for a Brazilian operator resulted in increased market share, a significant boost to ARPU and reduced churn. Given this enhanced commercial performance, the operator should experience a 5.5 percent increase in service revenues, a 6.4 percentage point improvement in Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margin, and a 6.7 percent increase in free cash flow from operations.
Johan Haeger, Head of Tactical Marketing, Business Unit Networks at Ericsson said “The results from the quantitative study clearly demonstrate what our ‘gut feeling’ and discussions with leading operators has told us for quite some time: that appropriately targeted capital expenditure leads to improved network performance. This translates into better market performance which is shown to boost financial returns.”