CapEx or Subscription? Understanding Your Purchasing Options for Wireless Networks

Seamless online communication is vital for organizational success, often necessitating a robust indoor wireless network to ensure uninterrupted connectivity and efficiency.

The decision on financing network acquisition—whether through direct purchase (CapEx) or a subscription model (OpEx)—depends on the organization's financial strategy regarding upfront investment, operating expenses, and the need for business agility.

In this blog, we'll explore the pros and cons of both financing options to help you better understand which approach best aligns with your organization’s strategic goals and financial capabilities. A summary of key points is provided below, followed by a detailed look at each option.

The CapEx Approach

Historically, local area networks (LANs) have been funded through an organization’s capital budget, funds earmarked to purchase or upgrade significant physical assets such as property, buildings, or equipment.

In this case, network systems integrators (integrators) were often the go-to providers for installing hardware and software to meet the organization’s network requirements in exchange for a sizable upfront payment. The pros and cons of this approach are listed below.

CapEx Pros

• Turnkey Installation. The network is delivered fully assembled and ready to use.
• Full Asset Ownership. You have complete control over the network infrastructure, including hardware and software, enabling customization and direct management of maintenance and upgrades without dependency on external providers.
• No Operational Budget Impact. This can be beneficial when income is low or operational expenses are under pressure.
• Helps Optimize Organizational Tax Strategy. Capitalizing the asset purchase over time helps reduce taxable income with annual depreciation deductions. 
• Strategic Use of Surplus Cash. Surplus cash reserves can be leveraged to build the organization’s asset base.

CapEx Cons 

• Significant Upfront Investment. The approach requires a large initial outlay to purchase the essential infrastructure, equipment, and installation.
• Additional Resources Required for Operations Management. While the integrator may have completed the network installation, hiring subcontractors to handle ongoing monitoring and maintenance may be necessary to ensure the system remains efficient and up-to-date. This can also introduce a layer of unpredictability to operational expenses, as the costs and availability of these services can vary widely, potentially impacting the budget allocated for repairs and updates.
• More Work for the In-House Team. The in-house team will need to dedicate more time and effort to managing any added subcontractors' work and ensuring their compliance with service-level agreements and carrier requirements. Alternatively, technical responsibilities could fall to the in-house team itself, possibly requiring additional expertise and more time.
• More Long-Term Planning & Budgeting Is Involved. Careful financial forecasting and capital allocation are necessary not only for the initial purchase but also for future associated costs, such as maintenance, upgrades, and eventual replacement.
• More Extensive Approval Process. While not always the case, the approval process will likely be more comprehensive than a subscription-based model, as significant capital allocation decisions or investments have a long-term impact on the organization's financial and operational strategies.
• No Guarantee Major Carriers Will Join the Network. Without specific agreements in place, it’s less likely major cellular carriers will join the network.
• Dampens Organizational Agility. Locking significant resources into long-term assets, especially in evolving technologies, limits a company's flexibility to adapt quickly to market changes or advancements.
• Higher Total Cost of Ownership Versus the Subscription Model. Over time, the cost of the initial installation purchase, maintenance, and upgrades accumulate, which can significantly exceed the recurring payments of a subscription-based approach.

The Subscription Model

The subscription-as-a-service funding model emerged several years ago in tandem with the rise of cloud computing and managed IT services. As an alternative to the CapEx model, this approach enables organizations to access network infrastructure and service via an annual or monthly subscription, aka connectivity-as-a-service (CaaS). Funding is achieved as an operating budget line item expense (OpEx).

In addition to the design and installation of a customized connectivity solution, with this approach, service providers offer network monitoring, management, maintenance, and lifecycle updates as needed. Pros and cons of this approach are listed below.

OpEx Pros

• No Significant Capital Outlay Required. This enables businesses to preserve cash flow and allocate financial resources to other strategic initiatives.
• End-to-End Managed Network. This approach provides organizations with a seamless network environment, comprehensive support, maintenance, and updates, ensuring optimal performance without requiring extensive in-house technical expertise.
• Predictable Budget Impact. Regular subscription payments enable companies to manage finances more effectively with consistent and expected monthly or annual costs.
• Helps Optimize Organizational Tax Strategy. Classifying the purchase as an operational expense provides an immediate expense deduction, which can reduce taxable income and improve cash flow in the fiscal year the costs are incurred.
• Improved Likelihood Major Carriers Will Join the Network. A neutral host network operated by a provider with strong carrier relationships enhances the probability that major cellular providers will participate in the network.
• Easily Scalable. A subscription model enables businesses to quickly adjust their network capacity and features to meet changing demands一even as the company grows一without significant additional investment. This flexibility also facilitates smoother enterprise planning.
• Enhances Organizational Agility. The OpEx model enables companies to rapidly adapt to technological advancements and market shifts (including increases or decreases in capacity) with minimal financial risk and operational disruption.
• Lower Total Cost of Ownership Versus the CapEx Model. The subscription model eliminates the need for a significant upfront investment and spreads costs over time with inclusive maintenance and upgrades resulting in an overall lower ownership cost.

OpEx Cons

• Lack of Network Ownership. This can limit control over network assets and customization options.
• Dependence on Vendor. Relying on a single vendor for continuity, maintenance, support, and upgrades increases critical infrastructure risk and can also limit flexibility in managing the network.
• Extended Contractual Obligations. This can constrain flexibility and potentially increase costs (penalties or termination fees) under a contract termination scenario.  
• Essential OpEx Budget Item. As a fixed operational expense, the network subscription fee must be paid regardless of business profitability.

Partnering With a Pro

When selecting a provider for your wireless network needs, regardless of whether you choose a CapEx or a subscription model, Airtower Networks (Airtower) is a preferred partner. 

The company’s management team, with over 150 years of combined experience in the wireless communications industry, has a solid track record of providing top-tier telecom infrastructure across the nation to Fortune 50 companies, hospitals, major real estate developers, and the federal government. 

Airtower is also backed by prominent global infrastructure funds, DIF Capital Management and CVC, ensuring robust support for its expansive operations and long-term strategic initiatives.

The company’s extensive array of services positions it as a comprehensive provider for all connectivity requirements. Their offerings include neutral host cellular, privately managed WiFi, and public safety networks, covering the full spectrum of wireless solutions. By partnering with Airtower, you align with a trusted expert who can ensure a seamless, efficient, and adaptable wireless communication solution that supports your organization’s specific connectivity demands, financial strategy, and operational success.

AirTower offers customized solutions and financing strategies to industries ranging from healthcare and hospitality to commercial and governmental. We provide our clients with cutting-edge solutions that provide seamless in-building connectivity, enhance their productivity, and improve their bottom line. Contact us today for a quote.