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

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.