Revenue growth rates for communications service providers (CSPs) remain modest, but CSPs will continue to invest heavily in their networks, according the latest forecast from market research firm Ovum. In spite of the tough financial climate, CSPs have continued to plough an average of nearly 18% of revenues per year into capex.
In the new report, "Communications Service Provider Revenue & Capex Forecast: 2014‒19," Ovum predicts 2014 capital expenditures (capex) will be about $346 billion, with fixed CSPs accounting for 41% of the total and mobile the remainder. Ovum expects service provider capex to remain flat in 2015 as mobile expenditure grows roughly the same amount as fixed capex declines.
"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 $354 billion by 2019," said the report's author and Ovum's principal network infrastructure analyst, Matt Walker.
Going forward, Walker expects CSPs' capital intensity (capex/revenue ratio) to fall slightly, to roughly 17.4% on average between 2014 and 2019. Nevertheless, global CSP capex is forecast to total more than $2 trillion over the period 2014 - 2019.
The years 2016 and 2017 are likely to be weak capex-wise for both the fixed and mobile segments, the analyst said. "We expect a modest recovery in 2018–19 as a new wave of fixed broadband, fixed cloud/data center, and mobile broadband upgrades start rolling out in a number of large markets," explained Walker. However, the global analyst firm warns CSPs that they must continue to do less with more, leveraging new technologies, network designs, vendors, and operating models.
Walker notes that CSPs are used to the tough situation and have learned to keep a lid on capex. Tactics include network sharing, which has seen rapid growth in over the last year or two (as discussed in Ovum’s November 2014 report with the informative title, "Network and tower sharing projects reach 100 by end 3Q14, up 32% from last year"). Even China has joined the party; mobile revenue growth has slowed rapidly there over the last few quarters, and a new tower-sharing venture is meant to help operators lower their cost base and increase efficiency, according to Walker.
CSPs are also adding software intelligence into their networks. Mobile operators have been deploying software-defined radios for many years, which can lower the cost of future radio upgrades. Software-enabled features appear in most other parts of the network, even in optical transmission and fixed broadband equipment. Vendors typically spend 50–70% or more of product R&D on software, according to Ovum, revealing its importance to future network operations. And then there are software-defined networking (SDN) and network functions virtualization (NFV). While not necessarily offering immediate capex savings, one clear aim of SDN/NFV proponents is to lower both operations and future capital costs, along with new service/feature deployment.
Walker concludes, "While CSP capex is tightly constrained, adjacent markets are starting to invest heavily in networks. Internet content provider (ICP) capex will reach nearly $57 billion in 2014, up from $18.3 billion 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."
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