Asian telcos struggling to control operating costs, despite 13% 1H04 revenue growth

September 7, 2004 Thailand--Operating expense (opex) growth is now outpacing revenue growth among key Asian service providers, according to a new report from MWL Consulting Co., Ltd. For the first six months of 2004 (1H04), revenue growth for 23 carriers amounted to 13%, while opex grew 15% over the first half of 2003.

This intensifies pressure on carriers to take measures now to reduce their cost base, in particular sales and marketing, and network operations. Opex cuts will involve near-term pain, but are necessary for the long-term health of the Asian telecom sector.

The good news is that capital spending (capex) is under control -- modest 9% 1H04 growth cut the much-watched capex/sales ratio to 17%, from 18% in 2003 (down from 28% in 2001). Net income is growing at 13%, the same rate as for revenues -- but the growth relies heavily on a few outperforming carriers. Capex is still high overall, relative to Europe and North America, and some Asian carriers are increasing capex substantially to support broadband and mobile buildouts. For example, capex growth from 1H03 to 1H04 was 33%, 49%, and 67% for, respectively, KT, NTT DoCoMo, and PLDT.

The summary data masks a wide range of variation in carrier performance. Solid companies -- here defined as those with revenue growth comfortably exceeding opex growth, high net profit margins, and moderate capex intensity -- include SingTel Optus, KDDI, AIS, Telekom Malaysia, PLDT, Chunghwa Telecom, Telecom New Zealand, and Bharti Tele-Ventures. Companies struggling, with opex growth in particular, include China Mobile, China Unicom, Telstra, NTT DoCoMo, SKT, KT, and Telkom Indonesia.

The new report is a supplement to, and confirms the key findings of, MWL's April 2004 report, "Overcoming the Opex Obstacle to Telecom Profitability in Asia-Pacific." This report presents financial operating data for Asian telcos from 2001-1H04, highlights the looming opex dilemma, and analyzes strategies for opex reduction. For more information on the report or the new supplement, please contact Matt Walker: [email protected], or +66.9.7000.499.