Telecom Ramblings

Yesterday in a comment on my EBITDA Margin Trends post, Raul suggested that I also plot  EBITDA less Capital Expenditures for telecoms.  I will do so, but along the way I thought it might be interesting to look just at capex trends themselves across the sector.  Now it is no secret that fiber-heavy companies spend more capex as a percentage of revenue, but I still found it interesting to see them side by side:

As expected, the metro fiber specialists TW Telecom (NASDAQ:TWTC - chart, news), Abovenet (NYSE:ABVT - chart, news), and RCN Corp (NASDAQ:RCNI - chart, news) Metro spend the most capex as a percentage of revenue, whereas those with less such as PAETEC (NASDAQ:PAET - chart, news) and Global Crossing (NASDAQ:GLBC - chart, news) spend less.  That’s a function of business model, not performance.  But beyond that basic difference,  some interesting features showed up:

• The overall trend is slightly downward, but only slightly.  Somehow I thought the effect of the recession on spending would be larger, but not by this measure apparently.
• Cogent Communications (NASDAQ:CCOI - chart, news) has lately been spending as much as anyone.  While they have a substantial metro footprint with over a thousand on-net buildings, that fiber is almost entirely leased and the rate at which they have been adding buildings has been quite steady – 25-30 each quarter despite recently spending quite a bit more.  The capex is going into their dark fiber expansions – mostly intercity, which appear to be more extensive than I have been giving them credit for.
• Sprint Nextel (NYSE:S - chart, news) has been spending on its wireline business relative to revenues – consistently less than anyone on my list and still trending downward.  I knew it was low, but I hadn’t stacked it up against the others.  This is probably partly due to the higher voice component of their revenues, which tends to have a low capex profile.
• CBeyond (NASDAQ:CBEY - chart, news), which owns little if any actual fiber, has still been spending pretty heavily on capex for its expansion.  That has begun to tail off a bit in terms of percentage of revenue lately, but not all the way.
• Level 3 Communications (NASDAQ:LVLT - chart, news), which probably has more fiber than anyone else on the chart, is nevertheless spending capex like they’re on a fiber-free diet.  That of course is because their debt load is especially heavy in a recession, and they have been managing cash very carefully.  The company’s recent local initiatives haven’t yet shown up, but ought to reverse the current trend when they do.

Next time I will look at (EBITDA-Capex)/Revenue, which we might call an adjusted operating cash flow margin or something.