Capex as a percentage of revenue for US telecom service providers has slowed in FY07. We attribute this slowing to a combination of already high penetration and coverage quality, and accelerated capex in FY06 arising from network restructuring. We find that growth pockets are limited to a few high growth companies with national network expansion ambitions.

The current capex trend is downward. Our study of capex and revenue trends of US telecom service providers leads us to conclude that capex spending trended down during the period studied for big telecom companies in North America. Looking at the average capex as a percentage of revenue, we see that the 5 largest telecom providers in North America spent 18% in FY05 and 17% in FY06 and 12% through the first 3 quarters of FY07. We have compiled 26 North American companies’ capex and revenue trend for this analysis and have done quick analysis of capex of five major US telecom companies.

What are the potential catalysts? It is possible that the current slowdown is a breather before service providers scale up capex post the 700MHz auction in early FY08 and commit more to 3G network and broadband infrastructure rollout. However, slowdowns in consumer spend and in the related areas of housing and infrastructure remain a key risk to capex growth in FY08.

The Gridstone platform currently covers 62 of the largest global telecom companies, and it regularly tracks as-reported-by company data on segment revenue, capex and other financial and operating metrics. For a complete list of telecom coverage see Appendix A. read more…