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What is telco's OPEX to CAPEX ratio?


A definition of CAPEX and OPEX

Capex means capital expenses. This means all the money that a company invests for the long term in property, plants, and equipment (PP&E). OPEX, on the contrary, means operational expenses. These involve all the costs that are required to run the business day after day.

By the way do you know which telcos have the highest CAPEX spend? If not, have look to my post on the top ten countries and telcos by CAPEX. 

The question: How much OPEX and CAPEX do Telcos spend?

Telecom operators deal with a very capital intensive activity: they need to lay fiber cables at the bottom of oceans, to dig trenches to bring fiber to your house, to build radio access networks whose successive generations require major investments every few years. A good question is therefore: what's the OPEX to CAPEX ratio for telcos?

The answer - OPEX/CAPEX =20-25% for 5 years of maintenance with good SLA

Some operators provide wireless services only. Other provide fixed networks only. Some of them target the enterprise business while others target the retail business... So, the ideal OPEX to CAPEX ratio can vary among operators. In addition, we must define the OPEX to CAPEX ratio more precisely.

A better definition of the OPEX to CAPEX ratio problem

What kind of OPEX do we include? The installation of new hardware triggers a range of OPEX causes, such as:
  • maintenance,
  • power consumption,
  • overheads.
Then, for which duration do we consider the OPEX? OPEX accumulate over the years, so, this questions has a strong impact on the value of our ratio. Let's consider a 5-year period, which is not uncommon for amortizing IT hardware.

How do we define CAPEX? The installation of new hardware triggers a range of CAPEX causes, such as:
  • the main hardware
  • spare parts
  • software licences
  • buildings to hosts the devices
  • cables
For simplicity let's consider only the main hardware (not the spares) and the software licenses.

The OPEX to CAPEX ratio

Now that we have a clear definition, let's consider the issue of maintenance. The OPEX/CAPEX ratio for maintenance depends a lot on the hardware that is ordered. It also depends a lot on the services agreements for maintenance.

For most network appliances, the ratio:
              [ratio_5y_maint]= [maintenance spend over 5 years] / [hardware + software acquisition price]*

should be around 20 - 25% for a SLA featuring hardware swap in 1 day during the week and 8x5 remote support. That's an indicative figure, based on my experience.

* at constant currency, not considering a net present value (NPV).

You have experienced different figures or would like to add your word about this topic? Feel free to comment! 

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