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Study Says Carriers Must Spend Money to Make Money

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Study Says Carriers Must Spend Money to Make Money

May 07, 2014
By David Delony
Contributing Writer

A new study commissioned by Ericsson appears to prove that if network operators want to make money, they’ll have to spend money.

“The results from the quantitative study clearly demonstrate what our 'gut feeling' and discussions with leading operators have told us for quite some time: that appropriately targeted capital expenditure leads to improved network performance. This translates into better market performance which is shown to boost financial returns,” Johan Haeger, head of tactical marketing for business unit networks at Ericsson (News - Alert) .

Haeger added that previous research has found that network performance drove customer loyalty. After all, customers aren’t going to keep paying monthly bills for a service that doesn’t work properly.

The survey was conducted by Raul Katz, president of Telecom Advisory Services and director of business strategy research at Columbia Business School. Katz used complex statistical methods to explore the relationship between capital investments in mobile networks and their financial success using three years of quarterly data across three markets.

Katz then developed a financial model that predicted the free cash flows operators could achieve depending on how much they invested in their networks.

One Brazilian operator found that if he invested 10 percent more in capital expenditure, he would yield substantial gains in market share, average revenue per user (ARPU), as a 6.4 percent increase in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) and less churn.

In simpler terms, carriers that spend money keeping their networks upgraded keep their customers happy, and happy customers keep subscribing to mobile services. Of course, Ericsson is more than happy to supply brand new equipment to carriers, so the study might not be completely unbiased.

Customers do have more choices when it comes to mobile service than they did in the past, especially with the growing popularity of no-contract plans. Carriers that expect to coast on the threat of cancellation fees and are not keeping network performance up will find themselves outpaced by carriers offering better terms to subscribers.

Edited by Maurice Nagle

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