A framework for managing CAPEX in telecommunications: KPMG survey reveals many opportunities to make improvements

CAPEX management improvement opportunities for telcos

Managing CAPEX in telecommunications: KPMG survey reveals improvement opportunities.

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With telecommunications companies expected to spend two trillion US dollars (US$) of capital expenditure (CAPEX) between 2014 and 20191, a new survey from KPMG International explores and addresses how those responsible for capital management can make the most of this significant investment.Peter Mercieca, KPMG’s Global Sector Chair, Media and Telecommunications comments:

“The global telecommunications industry is capital intensive and fiercely competitive. Capital management in this environment requires the right mix of investments to maximize long-term shareholder value by ensuring that expenditures are aligned to strategy and market demands. It is also about continually monitoring a portfolio of investments to make certain that it is managed efficiently to enable the business to compete and grow profitably.” 

The KPMG survey on capital management practices is based on responses from 20 of the world’s leading telecommunications companies based in Europe, the Middle East and Africa, Asia Pacific and the Americas - the largest of which have annual revenues over US$100 billion. 

According to the KPMG survey, fast-paced technology change, insatiable demand for data, and increased rivalry are driving considerable investment in next generation technologies, new markets, innovative products and services, strategic alliances and fresh business models. 

The KPMG survey identified leading practices and emerging trends across all aspects of the capital management process, highlighting differences in approach, and areas for improvement. Figure 1 below charts the relative capital management performance of survey respondents against the capital management lifecycle as defined by KPMG.

In summary:

  • There are strong governance processes over capital management decisions, through Board and Executive Capital Committee oversight and an effective capital management framework. Opportunities exist to closer align executive remuneration with capital management performance.
  • Capital planning is typically led by the Chief Financial Officer (CFO) and standardized across the group through policies, processes and reporting systems and practices. Capital plans tend to be a combination of top-down/bottom-up with centralized decision-making on strategic priorities.
  • Capital planning is time-intensive; typically requiring more than 3 months to complete, with most plans covering only 12 months in detail.
  • Most companies follow the same assessment process for planning and allocation decisions, with M&A activity often managed separately.
  • Business cases largely focus on meeting financial hurdle rates, although strategic, non-financial value drivers such as customer experience and technology service levels are increasingly considered.
  • Few telecommunications companies surveyed include funding sources in their business cases.
  • Capital is prioritized for investments offering the best risk-adjusted returns and strategic fit. However, there appears to be less rigor in the assessment of renewal and ‘business-as–usual’ investment cases – and in the subsequent allocation of funds.
  • Most telecommunications companies surveyed do not build contingencies into their capital budgets.
  • Regular performance reports are prepared, but reporting systems are largely manual, often relying on spreadsheets, resulting in delays and a heightened risk of errors.
  • Many telecommunications companies surveyed do not initiate independent, post-implementation reviews of major projects. Lessons learned are not routinely shared across the group.
  • Opportunities for ‘recycling’ capital invested in non-strategic businesses and assets tend to be assessed annually as part of corporate planning. Projects are assessed more frequently to confirm expected benefits and commercial justification of investments.

The full KPMG International survey ‘Building valuable connections: Capital management in the global telecommunications sector’ can be downloaded at www.kpmg.com/buildingvaluableconnections.

For more information, please contact:

Carolyn Forest

KPMG International 

+ 1 416 777 3857

cforest@kpmg.ca

Footnote:

1Communications Service Provider Revenue & Capex Forecast: 2014 - 19, Ovum, 2014.

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 174,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

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