Infonetics: Telecom carriers enter economic crisis on solid ground, but tough road ahead

Nov. 21, 2008

NOVEMBER 21, 2008 -- Infonetics' report, "Service Provider Capex, Opex, ARPU, and Subscribers," updated this week to reflect world events, projects a 2% downturn in worldwide carrier capex in 2009, led by big cuts by Asia Pacific service providers, followed by a flat 2010 and a slow return to growth in 2011 with the start of a new investment cycle.

NOVEMBER 21, 2008 -- Worldwide service provider capex are on track to reach $275 billion in 2008, up 10.5% from the previous year, reveals a new report from Infonetics Research (search for Infonetics Research). Much of the growth is due to currency appreciation against the U.S. dollar, which peaked in July 2008.

Infonetics' report, "Service Provider Capex, Opex, ARPU, and Subscribers," updated this week to reflect world events, projects a 2% downturn in worldwide carrier capex in 2009, led by big cuts by Asia Pacific service providers, followed by a flat 2010 and a slow return to growth in 2011 with the start of a new investment cycle.

While a telecom spending plateau was forecast by Infonetics in 2006 to begin in 2009, the global turmoil has shifted it to 2008.

"In this tough economic environment, service providers will sweat their assets, deplete inventories, reallocate capital to revenue generating areas, and use some capital to buy back stocks (take a look at BT)," says StÃ©phane TÃ©ral, principal analyst at Infonetics Research.

"The good news is most service providers have clean balance sheets, so they are entering the global crisis on solid financial ground," he adds. "They went through their correction when the Internet/telecom bubble burst, resulting in deep double-digit capex cuts. The bad news is dismal economic events have culminated in drastic declines of market valuation among companies in nearly every industry/sector, limiting funds to sustain or grow telecom services over the next 6-12 months, leading to capital spending constraints among vendors and carriers," he explains.

"In North America, EMEA, and CALA, we foresee only low-to-mid single-digit cuts because service providers there are already operating at moderate to low capital intensity (the ratio of capex to revenue)," TÃ©ral continues. "But in Russia and Asia Pacific, where capital intensity has been very high, we expect steep, double-digits capex cuts from some service providers."

Other highlights from the report include the following:
• Wireless services will help keep service providers' revenue afloat and prevent telecom from a major slump.
• Worldwide service provider revenue is on track to reach $1.63 trillion in 2008, up 9.5% from 2007, due in large part to currency appreciation, with the rest coming from wireless.
• The world's 10 largest service providers (ranked by 2007 revenue) are AT&T, Verizon, NTT, Deutsche Telekom, France TÃ©lÃ©com, Vodafone, TelefÃ³nica, China Mobile, BT, and Sprint.

Infonetics' capex report features analysis on how the current economic crisis is impacting telecom markets by region, as well as which telecom equipment segments are most and least likely to be affected by service provider capex cuts. The report series tracks revenue, capex, capex-to-revenue ratios, opex, ARPU, subscribers, and access lines of 164 public and semi-private/government-owned service providers on a monthly and biannual basis.

Reports are available for North America, EMEA (Europe, Middle East, Africa), Asia Pacific, CALA (Central and Latin America), and worldwide.

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