Canuck telcos cut capex cash

Canadian telecom capital expenditures (capex) are expected to decline 19 per cent in 2003 according to a report by IDC Canada Ltd. The cuts are a local symptom of the trend afflicting the global telecommunications sector, industry observers say.

World-wide, the sector has lost about US$2 trillion in the past two years, a result of “reduced spending, falling sales, infrastructure over-capacity, bankruptcies and accounting scandals,” according to IDC Canada’s report, Telecom’s continuing chill: Canadian 2003 Capital Spending Outlook.

Lawrence Surtees, an analyst at IDC Canada in Toronto, said Canuck telecom capex budgets are expected to decrease from the $7.2 billion spent in 2002 to $5.8 billion in 2003.

Surtees attributed the drop to companies that went bankrupt or restructured, such as AT&T Canada Inc. and Teleglobe Inc.

Canadian telco heavyweights Bell Canada and Edmonton-based Telus Corp. also tightened their purse strings. Last year Bell spent $3 billion on capex and has allotted $2.65 billion for 2003. Telus spent $1.7 billion in 2002 and has set aside $1.5 billion for this year.

However, both companies say this capex reduction isn’t the result of a downturn. It’s a return to normalcy.

Renato Discenza, senior vice-president, supply chain and capital management at Bell, called the boom in capex spending from late 1999 to 2001 an “anomaly.”

“Last year we finished at 19.6 per cent [capital] intensity. That’s not off historical standards,” he said. Capital intensity is the ratio of revenue to capex.

“So maybe the right question is what was propelling higher investment in the past?” he said, citing “Y2K,” the dot-com boom and investment in wireless spectrum as agents that fuelled higher capex budgets.

“[These are] things that don’t come around on an annual basis,” he explained.

Gwen Kenderdine, director of technology investment at Telus in Edmonton, said Telus is tapering its capex since its “go east” into central Canada initiative and western Canada IP strategies are coming to closure.

“We focused a lot on our investments [that were] needed to grow our business,” she said.

Kenderdine added that Telus would roll out new enterprise services, although those details remain confidential, she said.

Does reduced capex spell poor service for the enterprise? Just the opposite, Kenderdine said. “The amount of funding we have identified for service development has gone up from 2002 to 2003.”

Surtees said service providers would channel their money into projects that result in savings and new revenue. Kenderdine agreed.

“This year we’re much more focused…on capital to support revenue growth,” she said, adding that because Telus’ infrastructure is essentially complete, the carrier can invest in service development.

As service providers cut capex across the board, this year will be especially dismal for competitive local exchange carriers (CLECs). Their spending has almost dried up, Surtees said.

In 2003 CLECs will spend about $205 million of the $5.8 billion that the entire sector has set aside for capex. The metric represents 3.5 per cent of sector-wide capex spending, a number so small, “it’s almost a rounding error,” Surtees said.

“I think it has long-term competitive implications because capital is a competitive advantage,” he said, explaining that the CLECs might lose out to the relatively spendthrift incumbents.

As a result of the capex reductions, equipment vendors are feeling the crunch. The sector dropped nine per cent globally in 2002. To combat their loss of revenue from service providers, many gear makers, including Brampton-based Nortel Networks Corp., are starting to focus more on the enterprise market. Surtees said IDC Canada predicts enterprise spending on equipment will surpass that of service providers by 2006.

Kenderdine isn’t worried that this will lead to less innovative products for the telcos. She said enterprises usually work in tandem with service providers.

“It’s not a competition because [gear makers] provide the same equipment for those large enterprise customers [that] we need to provide the same service [to our clients],” she said.

Would you recommend this article?


Thanks for taking the time to let us know what you think of this article!
We'd love to hear your opinion about this or any other story you read in our publication.

Jim Love, Chief Content Officer, IT World Canada

Featured Download

Featured Article

ADaPT connects employers with highly skilled young workers

Help wanted. That’s what many tech companies across Canada are saying, and research shows that as the demand for skilled workers...

Related Tech News

Tech Jobs

Our experienced team of journalists and bloggers bring you engaging in-depth interviews, videos and content targeted to IT professionals and line-of-business executives.

Tech Companies Hiring Right Now