Ericsson: Investment in network is vital for financial returns

Increased levels of investments in network quality and performance create sustainable competitive advantages and improved financial returns for network operators, a new study commissioned by Ericsson has revealed. 

Carried out by Dr. Raul Katz, president of Telecom Advisory Services, and director of Business Strategy Research, Columbia Business School, the study 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 analysis of Mexico and the US showed the same robust relationships between investments, performance and finances as in Brazil, but Katz also found differences exist in the way the causality works under different market conditions.

The 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, while decrease of 1 per cent point in overall churn leads to a 6.86 per cent increase in service revenues, and that appropriately-targeted capital expenditure leads to improved network performance. This translates into better market performance, which is shown to boost financial returns.

The statistical results described in the study can be applied in scenario analysis on individual operators. Such simulations reveal that an investment-driven market strategy results in significant financial returns, and also show that the approach provides sustainable competitive advantages created before the competition has time to respond.

Founded in 1876, and with its headquarters in Stockholm, Sweden, Ericsson is listed on NASDAQ OMX stock exchange in Stockholm, and the NASDAQ in New York.