Study: Capital Investment Improves Network Performance, Giving Better Returns

  • Study demonstrates that investments in network quality do translate into better financial returns for operators, not only from cost savings but also from increased revenue
  • Study shows network investments generate 5.5 percent increase in service revenues and a 6.4 percent improvement of EBITDA margin in a case of a 10% increase in capital expenditure for an operator in Brazil
  • Decrease of 1 percentage point in overall churn leads to a 6.86 percent increase in service revenues

STOCKHOLM, Sweden, May 7, 2014 (GLOBE NEWSWIRE) -- A new study commissioned by Ericsson (NASDAQ:ERIC) shows that increased level of investments in network quality and performance create sustainable competitive advantages and improved financial returns for network operators.

The study, carried out by Dr. Raul Katz, President of Telecom Advisory Services, and Director of Business Strategy Research, Columbia Business School, explored the relationship between capital investments in mobile telecom networks and the technical, commercial and financial performance of operators.

Dr. Katz performed extensive statistical analysis, across a large set of metrics, on three years of quarterly data from three different markets -- Brazil, Mexico and the United States.

A simulation model was constructed to estimate the effects of increased capital expenditure on mobile operators' free cash flows, allowing operators to assess the commercial and financial gains attributable to the increased investments.

The study found that a 10 percent increase in capital expenditure for a Brazilian operator resulted in increased market share, a significant boost to ARPU and reduced churn. Given this enhanced commercial performance, the operator should experience a 5.5 percent increase in service revenues, a 6.4 percentage point improvement in EBITDA margin, and a 6.7 percent increase in free cash flow from operations.

The analysis of Mexico and the US shows the same robust relationships between investments, performance and finances as in Brazil, but Dr. Katz also found differences exist in the way the causality works under different market conditions.

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