Dell’Oro: Worldwide Capex Forecast to Rise 2017 – 2020 Despite Flat Carrier Revenues with only 2% from IoT

According to a recently published report from Dell’Oro Group, worldwide newtork operator capex is forecast to rise from 2017 through 2020 despite flat carrier revenues. The most notable increases come from AT&T, Sprint, Megafon, Orange, Etisalat, and Deutsche Telekom.

“We have adjusted our overall three-year CapEx expectations upward to reflect a more optimistic investment view than we had originally envisioned in both the US and Chinese markets,” Stefan Pongratz, a senior analyst at Delloro, said in a blog post online.  The increase in global CapEx is being driven by increased spending in the US, as the country tries to position itself at the front of the queue for 5G deployment.

“After three consecutive years of declining capex, short-term and near-term market expectations have shifted up,” Pongratz said.

“Here in the US, we maintain the view that conditions are stabilizing and both capex and capital intensity will continue to trend upward. There are multiple factors that support our renewed optimism for capex in the US:

  • We are seeing our first signs of US Federal tax reductions translating into increases in capex with a clear boost in AT&T’s 2018 capex projections.
  • We see Sprint investing again
  • FirstNet investments are set to commence in 2018
  • Larger data plans are propelling capacity investments

And lastly, overall carrier revenue trends are stabilizing,” continued Pongratz.

However, total capex spending in China [Figure 1. below] is still expected to decline year-on-year in 2018 and stay flat in 2019 before returning to growth in 2020.

Currency adjusted operator revenues are projected to remain flat between 2017 and 2020, with operators expected to struggle to find new revenue streams to offset slower smartphone revenue growth.

While the IoT has long-term revenue generation possibilities, there is expected to be limited benefit over the next few years. Dell’Oro estimates that carrier IoT revenues will account for just 2% of total mobile revenues by 2020. Preliminary IoT connection pricing trends for 2017 are cause for concern, with downside risks to the IoT carrier revenue forecast, should price trends prevail.  Please see Figure 2. below for Dell ‘Oro forecast of IoT Carrier revenue growth through 2020.

About the Report
The Dell’Oro Group Carrier Economics Report provides in-depth coverage of more than 50 carriers’ revenue, capital expenditure, and capital intensity trends.  The report provides actual and forecast details by carrier, by region, by country (United States, Canada, China, India, Japan, and South Korea), and by technology (wireless/wireline).  The report also discusses further capex accelerating factors such as preparation for 5G and inhibiting factors such as the flat revenue trend. The report assumes operators will struggle to identify new revenue streams.

To purchase this report, please contact Matt Dear at +1.650.622.9400 x223 or email Matt@DellOro.com.

About Dell’Oro Group
Dell’Oro Group is a market research firm that specializes in strategic competitive analysis in the telecommunications, networks, and data center IT markets.  Our firm provides in-depth quantitative data and qualitative analysis to facilitate critical, fact-based business decisions.  For more information, contact Dell’Oro Group at +1.650.622.9400 or visit www.delloro.com.

One thought on “Dell’Oro: Worldwide Capex Forecast to Rise 2017 – 2020 Despite Flat Carrier Revenues with only 2% from IoT

  1. Published January 2018:

    The 2018 telecom capex forecast is looking up!

    Our model points to 1.2% YoY growth fueled by the United States
    As mentioned in the IHS Markit 15 November 2017 Service Provider Revenue and Capex Market Tracker, all regions will experience some level of moderate capex growth this year (see Exhibit 1) with US-led North America in the driver’s seat:
    • North America (+1.2% YoY): As the US Tax Cuts and Jobs Act was passed before Christmas, we expect AT&T to keep its promise to step up its investment and add $1B to its $22B capex bucket. We also noted in the aforementioned market tracker that Sprint would significantly increase its capex to at least $5B with a maximum of $6B this year. With that factored into our model, the output shows capex at $86.8B this year from an estimated $84.6B in 2017. Note that the sudden favorable business environment in the US may also give T-Mobile US and Verizon incentives to hike their capex as well. We know for sure that Verizon will be busy with fiber deployments and does not see any significant of 5G rollouts on its capex, and T-Mobile US will be busy with its 600 MHz deployments.
    • EMEA (+0.9% YoY): EMEA was in the driver’s seat until last year with the fuel coming from BT and Telecom Italia; a new round of fresh capex will be coming from Vodafone Germany’s €2B Gigabit investment and OTE’s €300M pledge in Greece. We also have indications that Orange is set to increase its investment in full fiber networks
    at home and in Spain and Deutsche Telekom is discussing a major investment in fiber-to-the-home (FTTH). The rest of this moderate YoY capex growth comes from the likes of Portugal Telecom and tier 2 service providers led by COLT, Enel, and Fastweb (100% owned by Swisscom), all investing in fiber plant for FTTH and next generation mobile networks such as 5G.
    • Asia Pacific (+0.7% YoY): Accounting for more than 35% of total capex in the region, China remains the wild card. Assuming capex in China stays flat after two consecutive years of double-digit YoY decline, only India has the potential to generate moderate growth at this point, driven by Bharti Airtel, which is ramping up its capex by
    25% YoY to €3.3B to build its 4G network. We don’t expect Australia, Japan, and South Korea to move the needle that much, and therefore we’ll have to wait until March to receive guidance from the three Chinese operators.
    • CALA (+0.7%): The combination of musical chairs between Brazil and Mexico and a capex slowdown from the region’s big two (América Móvil and Telefónica) shows no sign of abating. We believe TIM Brasil will continue to bring some fuel to offset the completion of the buildout of Mexico’s national wholesale 4G network, Red Compartida, which is due to come online at the end of March 2018 and is expected to cost around $7B (€6.56B). At least the recession in Brazil is over and may provide a good reason for the big two to step up their investments.

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