The balance of power in the communications industry is shifting as Internet content providers (ICPs) such as Google, Apple and Facebook become responsible for a rapidly growing share of capital expenditure. That’s the finding of a recent report by industry analyst firm Ovum.
According to Ovum’s forecast, ICP capex grew from $23 billion in 2008 to $46 billion in 2013, and it will grow well over the $100 billion mark by 2019. ICPs are starting to spend heavily on their networks, particularly on data centres and cloud infrastructure.
Traditional telecom operators, aka communications service providers (CSPs), are likely to keep capex largely flat over the next few years, from the 2014 level of $340 billion. That’s partly because their revenue growth is hovering at around 2 per cent per year, which limits their network investment options.
In contrast, ICPs are recording much stronger revenue growth, and some – notably Google – spend more of their revenues on capex than typical large service providers, notes Ovum principal analyst and report author Matt Walker.
“Ubiquitous broadband and user-friendly fixed and mobile access devices have changed the telecom industry dramatically. Enormous new value is being created by the new business models, apps, and service platforms now available to end users, many enabled by Internet content providers,” said Walker.
Collectively, CSPs still have greater spending power. By 2019, fixed and mobile CSPs will still account for 29 per cent and 44 per cent, respectively, of total communications provider capex, while ICPs will likely reach 24 per cent of total capex. Carrier-neutral providers (CNPs), mainly tower and data centre specialist providers such as Crown Castle and Equinix, will chip in another 3 per cent.
However, this transition is not easy for many industry players, he notes. To take advantage of the explosion in digital media and the revenues that it generates, service providers need to act differently. Walker suggests they explore partnerships, exploit start-ups and ecosystems for innovation, consider a broader range of suppliers, and look realistically at M&A opportunities in the space.
The figure (above) compares these four provider types’ capex shares for the past six years (2008–13) and for the 2014–19 forecast period.
This report, Communications Provider Capex Forecast Report: 2014–19: Internet content providers will drive growth in capital spending on network infrastructure, analyses Ovum’s capex forecast for all types of service provider. Total spending was $2.1 trillion over the 2008–13 period; for 2014–19 Ovum forecasts spending of $2.6 trillion, with growth driven largely by the ICPs.