Driven by strong 3G W-CDMA capacity projects in EMEA and unabated LTE activity in China, the global macrocell mobile infrastructure market was up 2 percent in the 2nd quarter of 2015 (2Q15) from the prior quarter, and up 2 percent year-over-year, according to the IHS Infonetics Mobile Infrastructure Equipment report from IHS (NYSE: IHS).
“This time around, W-CDMA alone pulled the 2G/3G market out of the dumps and contributed to the growth of the whole mobile infrastructure market. Substantial 3G deployments took place in Brazil, India, the Middle East, Myanmar, Thailand and Vietnam,” said Stéphane Téral, research director for mobile infrastructure and carrier economics at IHS.
“Brazil kicked off a massive 2G GSM to 3G W-CDMA migration, and Thailand has ordered mobile operators to shut down their GSM network to re-use the spectrum for LTE,” Téral said.
MOBILE INFRASTRUCTURE MARKET HIGHLIGHTS:
- In 2Q15, the worldwide macrocell mobile infrastructure market totaled $11.4 billion
- LTE revenue was essentially flat (+1 percent) in 2Q15 from 1Q15, but grew 10 percent from the year-ago 2nd quarter
- IHS believes LTE will peak at $23 billion in 2015 and then start to decline as a result of diminishing rollouts worldwide
- 422 commercial LTE networks have been launched as of July 2015, 363 of which are of the FDD (frequency division duplex) variety
- Ericsson and Huawei share the LTE infrastructure market share lead in 2Q15, each claiming just over 20 percent
- Mobile infrastructure software is forecast by IHS to grow at a 5-year (2014–2019) compound annual growth rate of 8 percent
MOBILE INFRASTRUCTURE REPORT SYNOPSIS:
The quarterly IHS Infonetics Mobile Infrastructure Equipment market research report tracks more than 50 categories of equipment, software and subscribers based on all existing generations of wireless network technology, including radio access networks (RANs), base transceiver stations (BTSs), mobile softswitching, packet core equipment and E-UTRAN macrocells. The research service provides worldwide and regional market size, vendor market share, forecasts through 2019, deployment trackers, in-depth analysis and trends. Vendors tracked include Alcatel-Lucent, Cisco, Datang Mobile, Ericsson, Fujitsu, Genband, HP, Huawei, NEC, Nokia Networks, Samsung, ZTE, others.
CLOUD RAN WEBINAR:
Join analyst Stéphane Téral Sept. 15 at 11:00 AM ET for How to Achieve Full-Blown Cloud RAN, an event exploring the benefits and challenges operators can expect to encounter on the road to a full-blown cloud RAN architecture. Register here.
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Mobile Infrastructure Equipment Market:
The latest report from telecoms research firm Dell’Oro Group (July 2015) forecasts a 2% annual decline in the global mobile infrastructure market between 2014 and 2019.
What are the reasons behind this decline? Firstly, large-scale rollouts of LTE networks in the US and China, the world’s two biggest economies, are coming to an end. In China, operator rollouts of LTE are reaching their peak. Meanwhile, in the US, both Verizon and AT&T have announced their intention to slow down their capital spending after years of intense LTE investment.
Regardless of the rate at which data consumption is growing, CAPEX investment by operators is projected to grow globally at just 1% between 2013 and 2019, with most of this growth coming from emerging markets. In contrast, mature markets such as North America and Western Europe have already slowed to a halt and show negative CAPEX growth for this period.
Revenue trends for the period also highlight the problem for operators to monetize data. Globally, revenues are set to only grow by 1.6% annually up to 2019: once again, it will be emerging markets, and not mature ones, that will deliver this growth (source: Ericsson). This is a clear sign that mobile broadband (like voice before it) is on course to become a commoditised service that offers operators only limited opportunities for differentiation.
A maturing market with limited ROI:
It’s therefore high time to acknowledge that the network equipment market, after almost thirty years, has transformed from a fast-moving, high-growth emerging sector into an established mature market that delivers much lower returns.
The explanation for this is quite simple. Thirty years ago we had no mobile subscriptions and no mobile networks: today we have 7.1 billion mobile subscriptions worldwide and networks that cover 90% of the world’s population.
The success of the mobile industry was built with investment money attracted by the promise of lucrative growth prospects. In those early days, telecoms vendors made a fortune selling expensive infrastructure equipment for operators to build their networks.
However, those days are at an end: technology advances means that today, every node in the network not only costs just 10-20% of what it did 15 years ago, but can also handle 100x more network traffic.
With 90% of the world now covered by mobile networks, new rollouts are also coming to an end. Operators simply have no need to continue building out their macro networks at the same rate and scale as previous years.
Installing new infrastructure – for example, to deliver better coverage in rural areas: or to improve indoor coverage levels – is expensive and delivers only limited returns. Add in the paradox of the sharp rise in data traffic versus flat revenues for operators, and it’s easy to understand why operators are struggling to find new ways to boost margins and deliver growth.It’s this quest for better margins and an uptick in growth that explains the current trend for operator consolidation and the popularity of network-sharing deals. Of course, for equipment providers, these developments mean that their operator customer base is actually now shrinking.
From standardisation to commoditization:
Today’s global mobile telecoms sector could never have achieved the growth and the success it has without standardisation in the industry. This was vital in the early days in order to build a truly international market. Today, however, standardisation serves vendors rather less well. Infrastructure equipment has become a standardised commodity where large scale is all that matters. As a result, we now only have three global vendors competing in a market of ever-decreasing margins and returns.
Ericsson has long been a leader in the global mobile infrastructure market, holding a market share of over 30%. However, its share has declined over the past three years due to a technology shift from CDMA to 3G-4G/LTE and growing competition from lower cost China vendors Huawei and ZTE. The company’s mobile infrastructure equipment revenues have been down 6% since 2011, and this trend is expected to continue in the near future, with the Nokia-Alcatel Lucent merger emerging as a threat in the U.S. and Huawei presenting a serious challenge in Europe.
Ericsson has an operating margin of 6-8% on equipment sales. It’s also currently undertaking yet another cost reduction program. The company is looking to build its capacity in the LTE equipment domain, mainly in markets such as India and China, where the LTE presence is still limited. While the technology shift from CDMA/2G/WCDMA to 3G-4G/LTE has negatively impacted Ericsson, the company is not dwelling much on its dominance in the older CDMA domain. Instead, it is evolving with the market, investing in research and development (R&D) related to 4G/LTE and 5G technologies.