Remember 2007, when the United States’ economy started to topple? As we watched the mortgage and banking system crumble over the next year, taking with it the housing market and jobs, telecom analysts predicted dire ramifications for service provider capex. And sure enough, those fears materialized throughout 2008 and 2009. However, according to a new report from Infonetics Research, the impact wasn’t as devastating as expected.
Concerns about operators’ infrastructure investment stemmed, in large part, from high unemployment numbers and record home foreclosures. With more consumers cutting the cord and even canceling their broadband subscriptions, the outlook for 2009 appeared dim. And then, of course, such anxieties spread from the United States as the recession, too, rippled outward. Telecom experts consider capex a barometer of the industry’s health, and as a reflection of the whole economy. Last year, the situation looked grim.
Yet, as it turned out, mobile voice and data demand saved the day. Even though provider capex dropped hard by the middle of 2009, the second half of the year showed significant improvement – in line with Infonetics’ projections, the firm noted in a new report this week. Yes, as the world climbed out of recession, telecom carriers cut capex by 5.9 percent – but the number was “much less than many [observers] had expected,” Stéphane Téral, principal analyst for mobile and FMC infrastructure at Infonetics, said in a prepared release.
Worldwide, service providers invested $295 billion in their networks, Téral found. And even though the amount marked a decline, it still surpassed Infonetics’ 2005 capex forecast of $236 billion for last year.
“Carrier capex didn't tank like it did in 2001 for two main reasons: Service providers are operating with clean balance sheets, having learned that lesson from the great telecom crash, and the demand for broadband today is very real indeed,” Téral explained.
However, Téral cautioned, “don’t declare victory yet.” That’s because Infonetics sees worldwide carrier capex falling once again, bottoming out in 2010.
But, a new wave of 2G upgrades and 3G and LTE rollouts, as well as fiber-based wireline broadband projects will create a fresh investment cycle as of 2011, Téral said. In just the United States, carriers including AT&T Inc. and Verizon Communications Inc. should fuel that growth – both companies are constructing 4G networks using the LTE standard. Meantime, T-Mobile USA, for example, continues to boost its 3G service in parts of the country, most notably in the Northeast.
To be sure, mobile infrastructure needs will drive providers’ expenses. Infonetics said that, in 2011, mobile gear outlay will make up about 19 percent of operators’ budgets. Such news comes as no surprise given smartphone and tablet computer adoption rates.
As for 2009, the deepest cuts came in IP-gear deployments. Infonetics said carrier spending on IP voice, optical, video and router equipment dropped by 8 percent. Nonetheless, that situation already is changing for the better. Infonetics said earlier this week that networking giant Cisco Systems Inc. alone bumped up its service provider IP core and edge router revenue by 6 percent in 2010’s first quarter, a 33 percent increase compared to the year-ago period.
The data comes from the first edition of Infonetics’ biannual Service Provider Capex, Opex, ARPU and Subscribers report. Regions covered include North America, Europe, the Middle East, Africa, Asia Pacific, Central and Latin America and other markets.
