After several years of disappointments, global telco capital expenditures (capex) might increase stronger than expected next year. That might breath new life into the struggling telecom equipment and module market, which has been in the doldrums since at least 2001 with ever shrinking profit margins for telecom infrastructure gear makers.
Light Reading reports that European telcos might be forced to boost capex. Networks there are running at 65 percent of capacity, up from 40 percent, said Eitan Gertel, president of Finisar Corp., speaking at an MKM Partners conference recently. Finisar is a company that is driven primarily by growth in the demand for bandwidth from the pervasive distribution and use of video, photos, and all forms of digital information. Finisar Executive Chairman Jerry Rawls said on a recent earnings call, “Over time, enterprise and carrier spending will increase to provide more bandwidth capacity.” He added that “Finisar is uniquely positioned to capitalize on these market opportunities.”
Commenting on Finisar’s recent earnings results, MKM Partners analyst Michael Genovese said “Telecom continues to rebound and datacom likely stays solid. We view FNSR as a key beneficiary of the capex recovery.”
“The U.S. telecom services market is becoming more competitive with significant infusions of overseas capital into Sprint (from Softbank) and T-Mobile (from parent Deutsche Telkom). This has the potential to spark something of a capex race, and we have already seen positive spending announcements from AT&T, Sprint, CenturyLink and Deutsche Telkom. China Mobile has also made positive comments about its 2013 100G optical investment plans,” added Genovese.
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Deutsche Telekom AG (DT) recently announced that it plans to increase capex by €9 billion to €10 billion- to a total of about €30 billion ($38.9 billion) over the next three years. DT hopes to cover 85% of Germany’s population with LTE and 65% with Fiber to the Curb (FTTC) by 2016. LTE would come with download speeds of up to 150Mbit/s, while FTTC would be paired with vectored VDSL at speeds of up to 100Mbit/s. DT expects to spend about €6 billion ($7.78 billion) on the FTTC and VDSL vectoring pieces.
The increased capital expenditure is intended to help compensate for the decline in revenues from traditional fixed line network and mobile telephony as well as text messaging. In the US, capital expenditure of around USD4.7 billion has been planned for 2013 and around USD3 billion in each of the two subsequent years, compared with USD2.7 billion per year on average from 2010 to 2012.
“Hesitation now means playing catch-up later. We are investing in the future – with resolve and a clear strategy,” said Rene Obermann, DT chairman. “The investment plans we have presented today will lay the foundation for future growth, and it is the people in Germany in particular who will benefit more than ever from the modern infrastructure.”
In its recent report, “Service Provider Capex, Revenue, and Capex by Equipment Type (2012 Edition),” Infonetics Research forecasts a 3.6% increase in global telco capex in 2012 over 2011. The firm’s 5-year CAGR for capex from 2011–2016 is 2.7%.
“Economic readings are worrisome everywhere, but so far the impact on global telecom and enterprise remains tame, and we’re forecasting capex to grow nearly 4% in 2012 over 2011,” notes Stéphane Téral, principal analyst for mobile infrastructure and carrier economics at Infonetics Research. Téral adds: “With the announcement of AT&T’s and Deutsche Telekom’s multi-billion dollar investment plans, next year’s capex outlay looks brighter.”
The firm forecasts that Asia Pacific will account for about 1/3 of global service provider revenue by 2016, propelled by China Mobile, the world’s largest mobile operator by revenue and subscribers. Wireless pure-play operators will account for nearly 1/3 of all telecom capex by 2016, driven by 3G and LTE rollouts in China, India, and Africa. Surprisingly, incumbent carrier capex on the whole is flat to slightly down this year. But independent wireless operators, competitive operators, and cable operators (led by the independent wireless operators)are increasing capex by 12% this year.
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Insight Research is not so optimistic on capex. The company’s latest report “Telecommunications and Capital Investments: Impacts of the Financial Crisis on Worldwide Telecommunications, 2012-2017,” states that capex for global telecommunications service providers will be very uneven, with North America, Europe and the Latin American-Caribbean regions showing little or no growth and only Asia-Pacific and Africa continuing to make investments in telecommunications hardware and software to keep up with burgeoning customer demand for new services. The firm’s compounded 5-year (2012–2017) forecast is for an increase of 1.5% in global telco capex.
“Customers in every region are pinching pennies and the demand for advanced applications is uncertain. The confluence of these trends means a further erosion of operator margins, which in turn will affect investments into infrastructures and new technologies since funding is now more difficult to obtain,” says Insight Research President Robert Rosenberg.
For more information, please see: http://www.insight-corp.com/reports/invest12.asp
Lat month we reported on AT&T’s huge buildout expansion of its fiber and wireless networks. AT&T announced it will spend $14B over the next three years to expand its wireline and wireless networks under its newly coined “Project Velocity” initiative. $6B of that $14B will be spent on wireline upgrades, with the remainder on wireless- primarily LTE rollouts.