An Ericsson sponsored study today said 10 percent increase in Capex (capital spending) by a telecom carrier in Brazil resulted into 5.5 percent increase in service revenue and 6.4 percent surge of EBITDA margin.
The study is coming at a time when several Indian telecom operators such as Bharti Airtel, Reliance Communications are significantly dropping their Capex to improve profitability. Reduction in Capex has already resulted into poor network quality for some of the telecoms.
The Ericsson study also said decrease of 1 percentage point in overall churn leads to a 6.86 percent increase in service revenues.
The study indicates that increased level of investments in network quality and performance create sustainable competitive advantages and improved financial returns for network operators.
Ericsson said Raul Katz, president of Telecom Advisory Services, and director of Business Strategy Research, Columbia Business School, analyzed three years of quarterly data from three different markets — Brazil, Mexico and the United States.
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 telecom operator should post 5.5 percent surge in service revenues, 6.4 percent increase in EBITDA margin, and 6.7 percent increase in free cash flow from operations.
The analysis of Mexico and the US shows the same relationships between investments, performance and finances as in Brazil, but Katz also found differences exist in the way the causality works under different market conditions.
Decrease of 1 percent in churn for a Brazilian mobile operator led to a 6.86 percent increase in service revenues two quarters later.
