Column by Yulia Tishina on capital expenditures of mobile operators

Russian telecom operators ended 2023 with an increase in revenue and net profit, and the majority increased capital investments, according to the companies’ financial statements published last month. One could conclude that, despite all the predicted difficulties with purchasing, supplying equipment and increasing prices for it, the companies still ensured the expansion of networks last year. However, upon closer examination the situation looks less clear.

The only operator that, judging by published reports, reduced CAPEX in 2023 was MTS (presented results on March 5): the investment indicator decreased by 8.7%, to 101.5 billion rubles. In mid-2023, MTS assured that at the end of the year they would maintain capex at the level of previous years (see “Kommersant” dated August 23, 2023). The company explains the decline by “more active purchases of equipment and the high exchange rate of foreign currencies against the ruble during the period of such purchases in 2022.”

But for others, the increase in capex is due not only to investments in the network. Thus, MegaFon’s CAPEX in 2023 increased by 61.3%, to 101.1 billion rubles, but largely due to the deal to acquire the Yota trademark for 27 billion rubles. VimpelCom’s CAPEX amounted to 63 billion rubles, an increase of 4.7%, but the intensity of capital investments (their ratio to the company’s total revenue) decreased by 0.2 percentage points, to 20.8%. The company says that the growth of CAPEX implies both a network update (the number of base stations increased by 10.1%, to 204.3 thousand) and the introduction of the Southern Transit trunk line, as well as investments in IT infrastructure.

Tele2 does not disclose its reporting separately, but its indicators are consolidated by Rostelecom, which over the year increased investments in non-current assets by 51%, to 69.9 billion rubles, explaining this by “the restoration of investment activity, despite logistics restrictions.” The operator, in particular, is talking about reorienting equipment purchases to domestic analogues.

Meanwhile, the already questionable situation with network upgrades can only worsen in 2024. My supplier sources tell me that Chinese equipment manufacturers raised prices sharply at the end of 2023 due to increased demand from “parallel importers”. Against the backdrop of currency exchange rate fluctuations, problems with international payments and the lack of preferential loans, it will be more difficult for operators to purchase foreign equipment. Based on the fact that the first fully functional domestic base stations, according to their manufacturers, will enter the market in 2025 at best, it is apparently not worth expecting large-scale investments by operators in infrastructure in 2024.