Capital intensity

Capital intensity converts capital expenditure into something comparable across companies of different sizes. It is the number that explains why two businesses on the same EBITDA margin are worth very different amounts, because EBITDA is measured before the spending that keeps the assets working.

For a network operator it does not fall to zero once the build is finished. Equipment ages, coverage obligations tighten, and each generation of mobile technology has required new equipment on existing sites. A software business, by contrast, can hold capital expenditure to low single digit percentages of revenue once capitalised development is excluded.

Read it alongside the multiple, never instead of it. A sector trading on a lower EV/EBITDA multiple than another is often not cheap at all: the lower multiple is the market pricing the capital that has to be spent before any of that EBITDA becomes cash.

Two practical checks. Establish whether the capital expenditure figure includes spectrum, since operators disclose both and the difference is large, and separate maintenance from growth capital expenditure where the company gives you enough to do it, because only the maintenance part is genuinely unavoidable.