New research from Ovum, a telecoms analyst company, has found that revenue growth rates for communications service providers (CSPs) remain modest in 2014. This, coupled with its prediction that CSP capital expenditure will total more than US$2tn in 2014–19, means that CSPs must continue to do more with less, leveraging new technologies, network designs, vendors, and operating models.
In a new report, entitled ‘Communications Service Provider (CSP) Revenue & Capex Forecast: 2014‒19’, Ovum reveals 2014 capex will likely be US$346bn, with fixed CSPs accounting for 41 per cent of the total and mobile the remainder.
Ovum also announced that it expects flat capex in 2015 due to mobile growing roughly the same amount as fixed capex declines. The years 2016 and 2017 are likely to be weak capex-wise, for both the fixed and mobile segments. They expect a modest recovery in 2018–19 as a new wave of fixed broadband, fixed cloud/data centre, and mobile broadband upgrades start rolling out in a number of large markets.
Report author and principal network infrastructure analyst Matt Walker said: ‘CSPs have invested fairly heavily in 2013–14 across both fixed and mobile networks to support broadband rollouts. But this capacity will be absorbed, and technology and feature upgrades will drive capex back up to about $354bn by 2019. Over the entire 2014–19 forecast period, CSP capex will total over $2tn.’
The need to continually invest in networks is a constant pressure that faces CSPs. Technology doesn’t stay stagnant. Users continue to put more pressure on the networks. New players from adjacent markets threaten to steal customers and revenue streams if CSPs can’t keep up.
This has meant that CSPs have continued to spend heavily on networks in the last five years, re-investing an average of nearly 18 per cent of revenues per year into capex. Going forward, we expect CSPs’ capital intensity (capex/revenue ratio) to fall slightly, to roughly 17.4 per cent on average from 2014–19.
Walker notes that CSPs have faced a tough revenue climate for several years now, and learned to keep a lid on capex through a number of tactics such as network sharing. Walker said: ‘We’ve seen rapid growth in network-sharing agreements over the last year or two, as discussed in the November 2014 report, ‘Network and tower sharing projects reach 100 by end 3Q14, up 32 per cent from last year.’ Even China has joined the party; mobile revenue growth has slowed rapidly there over the last few quarters, and the new tower-sharing venture is meant to help operators lower their cost base and increase efficiency.’
CSPs are also adding software intelligence into their networks, in many ways. Mobile operators have been deploying software-defined radios for many years, which may lower the initial capex requirements of radio upgrades. Software-enabled features also appear in most other parts of the network, even in optical transmission and fixed broadband equipment. Vendors typically spend 50–70 per cent or more of product R&D on software, revealing its importance to future network operations. Another area of interest for R&D investment is software-defined networks (SDN) and network functions virtualisation (NFV). While not necessarily offering immediate capex savings, one clear aim of CSP proponents of SDN/NFV is to lower both operations and capital costs, along with new service/feature deployment.
Walker concluded: ‘While CSP capex is tightly constrained, adjacent markets are starting to invest heavily in networks. Internet content provider (ICP) capex will reach nearly $57bn in 2014, up from $18.3bn five years ago. We expect network capex from the ICPs – which include Google, Apple, Facebook, Alibaba, and many others – to continue growing over the next few years. These providers represent an attractive growth market opportunity for vendors selling technology.’
