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, news, filings), abvt, and RCN Business (NASDAQ:RCNI, news, filings) Metro spend the most capex as a percentage of revenue, whereas those with less such as PAETEC (news, filings) and glbc 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, news, filings) 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, news, filings) 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.
- cbey, 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 (NYSE:LVLT, news, filings), 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.