Credit rating firm Fitch Ratings expects telecom and cable company capital expenditures to decline slightly in 2013, despite continued higher wireless spending.
“Capital intensity typically ranges between 13.5% and 14% for the telecommunications industry,” wrote Fitch in an announcement about its report titled U.S. Telecom and Cable Stats Quarterly – Third-Quarter 2012. Despite a continuation of higher wireless spending as carriers roll out 4G LTE, Fitch said it expects capital intensity to “retreat” in 2013 to the lower end of the 13.5% – 14% range.
Fitch noted, however, that AT&T is likely to be an exception as the company has committed to boosting capital spending until 2015 to expand wireless and wireline broadband networks.
Fitch’s 14-page report provides useful summary financial data for the nation’s largest publicly held telecom and cable companies and for the industry as a whole. Anyone wanting to know major companies’ revenues, margins, or revenue and margin trends can find all of that information in one place, eliminating the need to search through multiple annual reports and filings.
Here are some of the highlights that caught my attention paging through the report:
- Cell tower companies make considerably wider margins than telcos or cable companies (64% for both American Tower Corp. and Crown Castle International in comparison with an industry average 32%). Some industry observers like to point out that the people who really made money during the California Gold Rush were the pickaxe manufacturers rather than the prospectors, and the Fitch data tends to support the notion that the same concept also applies in the telecom market.
- Cable companies had better margins than satellite video providers (32%, 36%, 32.3% and 37.6% for Cablevision, Charter, Comcast and Time Warner Cable, respectively, compared with 25.7% and 21.8% for DirecTV and Dish Network). This probably reflects the fact that the cable companies have stronger sales of higher-margin broadband services.)
- Landline-only (or primarily landline-only) telcos Centurylink, Cincinnati Bell, Frontier and Windstream had better margins (40.5%, 35.3%, 47.7% and 37.7%, respectively) than integrated landline/wireless companies AT&T and Verizon, whose margins were 33% and 33.5%, respectively. Centurylink, Frontier and Windstream have seen significant declines in margins since the fourth quarter of 2009, however, perhaps reflecting the decline in traditional voice services. Margins for those companies as of 2009 were 45.5%, 52.9% and 51.5%, respectively.
- Integrated telecom companies had better margins than companies that are primarily wireless. Sprint, MetroPCS, Leap and Telephone & Data Systems, which owns U.S. Cellular, saw margins of 13.9%, 31%, 19% and 20.8%, respectively.
- The company that saw the largest quarter-to-quarter margin decline was Dish Network, whose margins dropped from 25.4% to 21.8%. By way of explanation, Fitch cites “higher subscriber-related expenses.” Many industry observers have noted steep increases in programming costs and those could very well be a substantially contributor to the higher subscriber costs.