Global Telco Capex May Surprise on the Upside in 2013!

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.

Read more at:

http://www.streetinsider.com/Analyst+Comments/Finisar+(FNSR)+Seen+As+Key+Beneficiary+of+Telecom+Capex+Race/7960351.html


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.”

http://www.telegeography.com/products/commsupdate/articles/2012/12/07/dt-steps-up-investment-in-high-speed-networks-cuts-dividend/


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.

For more information, please see:

http://www.infonetics.com/pr/2012/1H12-Service-Provider-Capex-and-Subscribers-Highlights.asp


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


Reference:

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.

Read more at:  http://viodi.com/2012/11/08/at-bring-fiber-to-commercial-buildings-cover-99-of-us-with-lte/

8 comments for “Global Telco Capex May Surprise on the Upside in 2013!

  1. Anonymous
    January 6, 2013 at 4:38 pm

    UK market research firm Ovum thinks telecom growth will be disappointing in 2013. They say the slowing rate of economic growth seen in 2012 is expected to continue in 2013, presenting a challenging business environment for telecoms.
    Capital intensity “will remain flat and operating expenses will continue to come under pressure,” they write. “Key challenges for [telecoms] will be how to monetize new business models, leverage customer data by investing in analytics and define their response to over-the-top players.”
    http://www.rcrwireless.com/article/20130103/wireless/2013-predictions-key-messages-telecoms-industry-2013/

    • anonymous
      January 10, 2013 at 10:08 am

      European telecoms operators will continue to battle declining revenues and increasing EBITDA margin pressure in 2013, according to a new report from Fitch Ratings.

  2. December 26, 2012 at 2:01 pm

    It will be interesting to see the impact of the fiscal cliff and regulatory uncertainty on at least U.S. capital expenditures and, perhaps with a ripple effect, worldwide investments. If these factors are already baked into the forecasts with continued uncertainty and no fiscal cliff resolution assumed, then any sort of quick resolution could potentially provide a boost to projections. On the other hand, if these factors are already assumed to be resolved early on in the forecast, then continued dragging on could depress investment.

    • December 26, 2012 at 6:52 pm

      Ken, Thanks for your comment. If U.S. goes over fiscal cliff, we’ll be in a recession for 1st Half of 2013 or longer. In that case, all economic forecasts, including telco CAPEX, don’t mean anything!

  3. Chandra
    December 26, 2012 at 10:12 am

    Part II: Looking just at Verizon, Credit Suisse Telecom has revised its calendar 2012 forecasts by reducing its wireless-capex estimate by $250 million to $8.7 billion. The calendar 2012 wireline-capex estimate remains at $6.3 billion for a total calendar 2012 capex forecast of $15 billion, Credit Suisse analysts reveal

    The $1.7 billion fourth quarter wireline space represents a 13 percent quarter-over-quarter increase compared to an average eight percent quarter-over-quarter increase from calendar 2005-2011 and three percent year-over-year increase, compared to an average four percent year-over-year decrease from calendar 2005-2011. On the other hand, the $2.6 billion wireless vertical’s fourth quarter outlook represents a 21 percent quarter-over-quarter increase versus an average six percent quarter-over-quarter increase from calendar years 2005-2011, and a 45 percent year-over-year increase versus an average one percent year-over-year increase from calendar years 2005-2011.
    http://www.techzone360.com/topics/techzone/articles/2012/12/20/320468-how-much-where-will-telecom-capex-grow-2013.htm

  4. Chandra
    December 26, 2012 at 10:09 am

    How Much and Where Will Telecom Capex Grow in 2013?
    Analysts seem to agree that global service provider capital investment will grow more slowly over the next five years. Generally speaking, the expectation is that growth rates in developed countries will slow or decline, but global capex spend will continue to grow on the strength of demand for mobile services in developing countries.

    Capital investment is showing growth in Asia, Africa, and Latin America-Caribbean regions and holding steady or declining in Europe. Overall, growth over the next several years (2011 to 2017) will be half of the 2004 to 2010 period.

    Globally, service provider capital investment, which was down in 2009 and picked up in 2010, will remain essentially flat or decline in the developed world in 2013, while continuing to grow in the BRICS and select emerging market and developing countries, Insight Research predicts.
    http://www.techzone360.com/topics/techzone/articles/2012/12/20/320468-how-much-where-will-telecom-capex-grow-2013.htm

    • Telco Skeptic
      January 15, 2013 at 5:26 pm

      One guy writes :telecom infrastructure investment will drive growth”

      http://www.telecomstechnews.com/blog-hub/2013/jan/07/telecom-infrastructure-investment-will-drive-growth/

      I don’t believe there now is (or will be) a significant investment in telecom infrastructure by telcos, VCs, angels private equity/buy out firms or other institutional investors!

      • January 15, 2013 at 8:01 pm

        Dear Telco Skeptic:
        The url you reference in your comment is a post that regurgitates highlights of an Infonetics press release without offering any original content or analysis! It doesn’t even mention which Infonetics market study:
        “Infonetics Research has released excerpts from its latest market study, which analyzes global and regional market trends and conditions affecting telecom service providers, enterprises, subscribers, and the global networked economy.” In fact, we covered that Infonetics report along with related info & analysis in this article:
        http://viodi.com/2012/12/05/infonetics-mobile-infrastructure-market-down-in-quarter-small-cells-not-so-hot/

        Please don’t reference “copy cat” articles like the one above in future Viodi View comments. Thanks, alan

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