Carriers must lower opex per bit 32% per year to keep pace with declining revenue, says RHK

April 22, 2003
22 April 2003 San Francisco, CA Lightwave -- According to new research from RHK, service providers will have to reduce their operating expenditures per bit by 32% per year in order to keep pace with declining revenues. RHK's forecasts for service provider revenue, capital expenditures, and traffic point to a significant challenge for opex, including network costs; access charges; selling, general, and administrative costs; restructuring costs; and depreciation and amortization.

22 April 2003 San Francisco, CA Lightwave -- According to new research from RHK, service providers will have to reduce their operating expenditures (opex) per bit by 32% per year in order to keep pace with declining revenues. RHK's forecasts for service provider revenue, capital expenditures (capex), and traffic point to a significant challenge for opex, including network costs; access charges; selling, general, and administrative costs (SG&A); restructuring costs; depreciation and amortization; and other expenses.

North American wireline carriers experienced an annual revenue per bit decline of 15% from 1996 to 2002. In the same period, operating expenses per bit did not keep pace, declining only 12% per year. Carriers made remarkable progress, however, with capital expenditures per bit, which fell 18% per year during that period.

Through 2006, the decline in revenue per bit is expected to accelerate to an average of 29% per year, as relatively low-revenue Internet-Protocol (IP) traffic becomes even more dominant. RHK's latest research shows IP revenue per bit declined by 50% last year, and though this rate is expected to slow, says Shing Yin, senior analyst with RHK's Telecom Economics program, it will still decline about 29% per year. North American wireless service providers are facing the same challenges as the wireline carriers, with price competition driving margins lower.

In addition to its analysis of the North American market, RHK also studied operating expenses for a sample of European service providers and found that opex reduction needs to be a priority in Europe just as in North America. The major European carriers have been unable to reduce network costs substantially over the last several quarters. "Many European providers have higher network costs compared to North American averages, indicating that they have many opex issues to address," says Kate Horricks, senior financial analyst with RHK's Telecom Economics program.

Sponsored Recommendations

Data Center Interconnection

June 18, 2024
Join us for an interactive discussion on the growing data center interconnection market. Learn about the role of coherent pluggable optics, new connectivity technologies, and ...

New Optical Wavelength Service Trends

July 1, 2024
Discover how optical wavelength services are reshaping the telecom landscape, driven by rapid expansion and adoption of high-speed connections exceeding 100 Gbps, championed by...

Coherent Routing and Optical Transport – Getting Under the Covers

April 11, 2024
Join us as we delve into the symbiotic relationship between IPoDWDM and cutting-edge optical transport innovations, revolutionizing the landscape of data transmission.

The Pluggable Transceiver Revolution

May 30, 2024
Discover the revolution of pluggable transceivers in our upcoming webinar, where we delve into the advancements propelling 400G and 800G coherent optics. Learn how these innovations...