As this should be a pretty slow news week, let’s take another look at what the updated data in Telecom Ramblings’ recently updated competitive telecom trends section can tell us. There’s one plot there that I’ve always had but never really figured out what to do with — let’s give it another shot.
The ratio of EBITDA less Capex to Revenue isn’t a standard industry measure, but can be thought of as way to look at what different network builders and operators are doing with their EBITDA:
(EBITDA-Capex)/Revenue for Competitive Network Operators
The highest on the chart, above 20%, are the ones that are paying out a bunch of dividends: CNSL, Cogent Communications, and until recently, Windstream. Of course, Windstream is still paying out dividends, but they spun off a bunch of it into CS&L, and therefore in recent quarters their trend has shifted to a new level below 10% – but which may yet evolve I suspect.
In the upper middle clustered at 15-20% are the operators that are mostly just keeping enough of their EBITDA to pay interest on their long term debt while pouring the rest back into the network whether for organic growth projects or integration. GTT has the lowest capex model of that group, and heads the list, followed by Level 3, Zayo, and Earthlink, the last of which also has a dividend payout. While Zayo’s EBITDA margins are huge, they always seem to find enough projects to invest in and fall into the same range on this plot as others — I suppose when they start running out of such projects they’ll start paying dividends, haha. Level 3 has been seeing free cash flow growth, but on this plot we see them pretty steady in the same range so far, albeit in trailing 12 months form. 2016 should be interesting.
And at the low end are those operators that are currently investing more in capital expenditures than they make in EBITDA. euNetworks and Lumos Networks are by this measure the most aggressive builders tracked here, consistently investing more capex on network expansions on a relative basis than other competitive operators not just relative to revenue but to EBITDA as well.
Then there’s Sprint’s wireline business, which is also under water here, but not because it’s capex is high but because its EBITDA margin has fallen so low. And Broadview keeps on puttering along unnoticed as it continues its transition from CLEC to cloud while keeping just enough of its cash flow handy to keep its balance sheet steady.
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