As in all industries, in order to win in a market and set an appropriate strategy, it is important to know as much as possible about that market and have at one’s disposal tools that will provide insight and competitive advantage when properly, collectively, consistently, and timely applied. This paper presents a series of powerful, but easy to use and understand, analytical and operational tools that deliver insight and competitive advantage to the telecommunications professional. Moreover, it should be stated that as with all good tools, the tools and models as presented herein transition across industry lines and are not limited to the telecommunications industry alone.
Starting in the 1990s, the telecommunications market appeared to experience unprecedented and unbounded growth with the advent of The Telecommunications Act of 1996. This growth was paralleled by a growth in capital equipment purchases (CAPEX) by network operators (see Figure 1). However, by the early 2000s, we saw a major market correction and the collapse of many firms that caught many industry professionals, bankers, and investors by surprise. The economic dislocations caused by the failure of so many telecommunications network providers were enormous. Hence, an examination was undertaken to see if tools and models existed that could provide significant insight into changing market conditions. By examining these market dynamics and the fundamentals at play in the telecommunications space, it becomes apparent there are models and tools that provide insight as to the market’s stage, and where it is likely to go next. Such a view is important to the investor, creditor, and operator alike in order to have a vision of the current and future market states so appropriate and timely decisions can be reached.
Figure 1. Top
The revenue capital expenditure growth rate comparisons
Because of the turmoil experienced in the telecommunications industry over the past decade, it is useful to view tools that can assist the telecommunications professional with understanding the market(s) and the trends at play. Looking at the telecommunications market from 1996 to 2007, it can be seen that the market exploded in the first half of this period with a 26% cumulative annual capital expenditure growth rate (CAPEX CAGR), collapsing in the latter part of this period (Hilliard, 2007; Lehman Brothers, 2000).
When capital expenditures so far outstrip the gross revenue growth rate, one knows this situation cannot continue unabated, and a return to a more normal state must take place. In order to discern approximately when a return to a more normal state will come about, one may examine the underlying market drivers (Nugent, 2001, 2003). Market drivers will often signal the size, breadth, and depth of a market.
Key Terms in this Chapter
Mix Shifts: Shifts in the market between major components usually requiring different technology or solutions.
Inflection Points: Significant changes in corporate performance.
CAPEX: Capital Equipment Expenditures usually measured as a percent of gross revenue.
State Gap & Trend Analysis: A tool used to present in a structured format current market or technology states as well as future states. This analysis requires a “one for one” transition – a “this to that” view. This model calls for no ambiguities. The perilous part of this tool is determining how to transition the Gap – where one has to be by when, with what.