Digital Spend

Part
01
of one
Part
01

Annual Spend - Digital Transformation

The estimated total annual spending for digital transformation in the telecommunication industry in the United States in 2016 was $8.78 billion. The largest telecommunication companies estimated digital transformation spending was; ATT&T ($1.92 billion), Verizon ($1.47 billion), T-Mobile ($435 million), Sprint ($378 million), and US Cellular ($46.08 million).

Due to the absence of precompiled industry reports in the public domain, the above figures were derived using triangulation from available industry reports, statistics, and annual reports. Below, the capital expenditures (capex) of each company was included as a comparison with the estimated annual spending. These types of spending (i.e. digital transformation) normally comes from its parent segment, capex.

TELECOMMUNICATION INDUSTRY'S DIGITAL TRANSFORMATION SPENDING IN THE UNITED STATES

Globally, digital transformation spending, according to IDC report, was over $1.2 trillion in 2017 and about $1.02 trillion in 2016 (calculated from the given 17.8% increase from 2016 to 2017). The digital transformation spending forecast to reach $2.0 trillion in 2020 at a CAGR of 17.9%. The United States account for the biggest expenditure with 30% share of the total, which translates to $306 billion in 2016 [$1.02 trillion*30%]. This figure represents total digital transformation spending in all industries.

A white paper released by World Economic Forum in 2017 reported the average percentage share of IT spending from total revenues and how much of these spending is for digital transformation for each industry. In the telecom sector, 3.9% of the total revenue accounts for IT spending. Of the total IT spending, about 30% is used for digital transformation.

In 2016, revenues generated from all sectors in the telecommunication industry in the United States was worth $750 billion. Using percentage indications for the telecommunication industry given by the World Economic Forum to calculate the digital transformation spending in the United States;

Telecom IT spending from total revenue
= $29.25 billion

If 30% of these are for digital transformation;

$29.25 billion*30% = $8.78 billion (digital transformation spending in the telecom industry in the United States)

According to a report by CMS Connected, overall IT spending (which will include digital transformation) in the telecommunications' industry will "remain relatively sluggish."

The LARGEST TELECOM COMPANIES AND THEIR ESTIMATED DIGITAL TRANSFORMATION SPENDING

The largest telecom companies according to revenues in the United States are AT&T, Verizon, T-Mobile, Sprint, and US Cellular. While each company's annual reports were all available in the public domain, the digital transformation spending was not revealed, neither its IT spending except its capital expenditures where normally these types of spending (i.e. IT, digital transformation, and technology investments) were included. Press, news, and article searches also did not yield any result.

While these informations was not available publicly, each company's digital transformation spending was determined by using the average percentage share of IT spending from total revenue which is 3.9% and using the 30% share of digital transformation from overall IT expenditures. Revenues for each company, estimated IT spending and digital transformation spending is presented below.

AT&T
Estimated IT spending = $163.78 billion*3.9% = $6.4 billion
Estimated digital transformation spending = $6.4 billion*30%
= $1.92 billion

AT&T's capital expenditures in 2016 were $22.4 billion. According to its annual report, capital spending was "primarily for network upgrades and expansion." Digital transformation spending accounts for about 8.6% of the total company's capital expenditures [$1.92 billion/$22.4 billion].

VERIZON
Estimated IT spending = $125.98 billion*3.9% = $4.91 billion
Estimated digital transformation spending = $4.91 billion*30%
= $1.47 billion

Verizon's capital expenditure was $17.1 billion. Investments made was for innovation in mobile and digital services, and investment in "new sources of growth in the digital economy." Digital transformation spending accounts for about 8.6% of the total company's capital expenditures [$1.47 billion/$17.1 billion].

T-MOBILE
Estimated IT spending = $37.20 billion*3.9% = $1.45 billion
Estimated digital transformation spending = $1.45 billion*30%
= $435 million

T-Mobile's property and equipment capital expenditures which were $4.1 billion "primarily relate to network transformation", including other technology upgrade investments. Digital transformation spending accounts for about 10.6% of the total company's capital expenditures [$435 million/$4.1 billion].

SPRINT
Estimated IT spending = $32.180 billion*3.9% = $1.26 billion
Estimated digital transformation spending = $1.26 billion*30%
= $378 million

Sprint's capital expenditures were $4.68 billion. Digital transformation spending accounts for about 8.1% of the total company's capital expenditures [$378 million/$4.68 billion].

US CELLULAR
Revenue in 2016 = $3,939 million [$3.939 billion]
Estimated IT spending = $3.939 billion*3.9% = $153.60 million
Estimated digital transformation spending = $153.60 million*30%
= $46.08 million

US Cellular's capital expenditures were $446 million in 2016 and these expenditures "makes substantial investments to acquire, construct and upgrade wireless telecommunications networks and facilities." Digital transformation spending accounts for about 10.3% of the total company's capital expenditures [$46.08 million/$446 million].

CONCLUSION

Telecommunication companies in the United States spend an estimated $8.78 billion for digital transformation annually. Based on each company's spending, AT&T spends about $1.92 billion, 8.60% from its total capital expenditures while US Cellular spends an estimated $46.08 million, a 10.3% share from its total capital expenditures. If in the United States, the total digital transformation spending for all industries was $306 billion (based from IDC report), then telecom sector accounts for about 3% [$8.78 billion/$306 billion] of the total.

Sources
Sources