Reducing or removing infrastructure licensing high on agenda of Middle East telecom operators'

DUBAI, UAE: Since the 'global economic crisis' in 2008, few economies to date have managed the slow climb towards tentative recoveries. Commercially, the impact of any economic downturn hits some companies harder than others.

For example, niche players tend to struggle, smaller companies may either fold or merge; in general, market consolidation dominates the economic landscape.

Whilst manufacturing is always the biggest loser, 'service based' companies are hit very hard during an economic downturn, as services are typically the first thing consumers of all sizes, including the lucrative 'long tail', look to cut back on when balancing their budgets. Whilst services can cover a broad spectrum of verticals, the mobile operator is often the first to suffer as the handset market slows to a crawl and existing users look to reduce their spending (NMRC, 2009).

Glen Ogden, Regional Sales director, Middle East at A10 Networks says that when this economic inflection point is reached, the debate over 'capital expenditure' versus 'operational expenditure' is brought to the forefront and impacts every link in the supply chain, from vendor to service supplier.

Nowhere is this felt more keenly than the mobile operator as ‘CAPEX' can be considered a ‘sunk cost'; that is to say the infrastructure has already been purchased prior to the downturn. In summary, the money is already spent and fully accounted for.

The problem in balancing the books, therefore, now lies with the running costs for this infrastructure, i.e. the ‘OPEX'. If the ‘Operational Expense' of running an infrastructure outstrips the revenue derived from those consuming and paying for it, then it's an economic race against time. This race, whilst multifaceted, largely rests on the liquidity of the provider, i.e. do they have access to enough ‘cash' to weather a downturn.

If the crisis of 2008 taught the world's economies anything, it is that the path to recovery is unpredictable and without mitigating factors to insulate or cushion an economy through a downturn, it can be a lengthy process, especially if their economy is built around direct foreign investment. When the length of a recovery is unclear or unpredictable, OPEX becomes the critical ‘yard-stick' by which all spending is measured, regardless of whether this is a historical or future spend.

There is a saying, ‘once bitten, twice shy' and after a downturn, this saying becomes particularly poignant as once buyer behaviour is changed it is unlikely to alter, even if a recovery is in evidence. This makes sense, as economic mistakes of the past tell us that once we've paid for something it's ours to use and the key to longer term financial viability is not how much we spent (necessarily), but on how much what we've bought, costs to run.

Therefore, every buying decision becomes predicated on low OPEX, regardless of whether the initial CAPEX is high. As an equation this is simple to follow. Can I afford/ have I budgeted for the CAPEX today? If the answer is yes, then the second, and one could argue the most important part of the equation, is how much will this cost me per month/ per year to maintain? If the operational expense, i.e. the maintenance is high, then the equation makes no sense and the solution is rejected regardless of how cheap the initial spend may appear.