APAC telco capex on target to drop 10%

October 21st, 2013 by · Leave a Comment

This article was authored by Joseph Waring, and was originally posted on telecomasia.net.

Slowing revenue growth (pegged at just 3% this year) and a continued decline in ARPUs (down 14% since 2010) across Asia Pacific are having a knock-on effect on telecom equipment vendors.

Ovum reported last week that service provider network capex in Asia Pacific fell 13% in the first half of this year to $52 billion. The company credits the decline to spending cuts in Japan and China after sharp increases in capex last year, particularly by DoCoMo and China Unicom.

Ovum predicts that for the full year capex in the region will fall 10% to $114 billion.

Looking specially at China, Synergy Research and TeleGeography forecast network capex to peak this year at $46 billion or 27% of total revenue — thanks to big 4G rollouts by China Telecom. The firm predicts capex will then drop 1-2 percentage points per year until it levels off at 20% in 2017. Last year capex accounted for 25% of service revenue.

Strong demand for 4G gear is actually being largely offset by continued declines in legacy technologies globally, according to an ABI Research report.

Another important factor pushing pressure on telco capex, says Ovum principal analyst Matt Walker, is that mobile operators have found plenty of ways to lower their cost base through such things as infrastructure sharing and SDN, which is just starting to take off.

But any conclusion that telcos are hitting peak capex would be premature.

The worldwide mobile core network infrastructure market recovered slightly in Q2 with a 1% increase after an “alarming dip “ in Q1 for wireless infrastructure vendors, said Joe Hoffman, the ABI’s research director for software, optimization and monetization. “We see the recovery in Q2 continuing through the rest of the year.”

Infonetics Research expects the global telecom equipment and software market to grow by almost 5% per year until 2017 after a flat 2012.

“I actually see [capex fall in] 2013 as a valley in Asia. Life should get modestly better next year,” predicts Ovum’s Walker. “We won’t see a big bump, but several markets should return to modest growth next year. Our updated forecast is pending, but tentatively a 5% capex bump in 2014 for APAC seems likely.”

However, he noted that the composition of capex is shifting. New wireless technologies are deployed with lower up-front costs, resulting in steep capex declines. Walker said operators now are focusing their capex more on network optimization, personalization, and other things more reliant on software tools and often on a different set of vendors.

For example, Ovum expects global spending on big data-related infrastructure and services to grow 28% per year to $7.7 billion in 2018 from $1.7 billion last year. The firm forecasts similar growth for Asia.

Informa Telecoms & Media predicts that big data spend, which now accounts for an average of 10% of total IT budgets, will take up 23% of the total in five years.

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