Analysts: Telco CAPEX crash looks to continue: mobile core network, RAN, and optical all expected to decline
Dell’Oro has just cut its outlook for mobile core spending for the fifth consecutive time. Not a single operator has adopted 5G SA this year.
“It bears repeating, this is the fifth consecutive time we have reduced the growth rate of the MCN market as the build-out of 5G SA networks continue to wane compared to 5G Non-standalone networks,” said Dave Bolan, Research Director at Dell’Oro Group. “This is the first 5-year forecast out of the last five where the 5-year CAGR (2023-2028) has fallen into negative territory. The count of 5G SA networks commercially deployed by MNOs remains the same as it was at the end of 2023, about 50 5G SA networks.
“For the same reasons outlined for the MCN market, we reduced the 5-year cumulative revenue forecast for the Multi-Access Edge Computing (MEC) market, a sub-segment of the MCN market, by 18 percent. In the case of MEC, the adoption rate is slowed much more dramatically than the overall MCN market. The industry is addressing these concerns with several initiatives such as open gateway application programmable interfaces (APIs) to attract the application development community to develop applications for the mobile industry that can easily be leveraged across all MNOs. Release 18 is introducing capabilities for new use cases, and Reduced Capability (RedCap) RAN software to bring more 5G IoT devices to market. However, these will take time to bring solutions to market and more importantly at scale to have an impact on the overall market growth,” Bolan added.
Additional highlights from the Mobile Core Network & Multi-Access Edge Computing 5-Year July 2024 Forecast Report:
- The CAGR is negative for all product segments—Packet Core, Policy, Signaling, Subscriber Data Management, and IMS Core.
- The CAGR for the market segments is positive for 5G MCN and MEC, and negative for 4G MCN and IMS Core.
- The CAGR by regions is positive for Asia Pacific excl. China, Europe, Middle East and Africa (EMEA), and Worldwide excluding China. The regions with negative CAGRs are North America, CALA, China, and Worldwide excluding North America.
Dell’Oro has called the RAN market as “a disaster.” “It’s difficult to find a silver lining in the first quarter,” said Stefan Pongratz, Vice President and analyst at the Dell’Oro Group. “We’ve been monitoring the RAN market since the year 2000, and the contraction experienced in the first quarter marked the steepest decline in our entire history of covering this market. In addition to the known coverage related challenges that the market is dealing with when comps in the advanced 5G markets are becoming more challenging, there are now serious concerns about the timing of the capacity upgrades given current network utilization levels and data traffic growth rates,” continued Pongratz.
While the overarching RAN sentiment appears to be mostly aligned over the long term, it is worth noting that internal expectations across the key players vary quite a bit over the short term. In addition to the coupling between coverage capex and the state of the 5G networks (per Ericsson’s Mobility report, 5G POP coverage is lower in CALA/MEA/APAC excl China&India), the dynamics between urban and rural sites also impact growth prospects. The Chinese RAN vendors are generally more optimistic about 2024 than the leading non-Chinese RAN suppliers.
It’s no secret that telecom operators are scaling back their investments in 5G. Preliminary findings show that worldwide telecom capex, the sum of wireless and wireline/other telecom carrier investments, declined for the full year 2023 in nominal USD terms, recording the first contraction since 2017. This deceleration in the broader capex spend is consistent with the aggregate telco equipment slump previously communicated for the six Dell’Oro telecom programs (Broadband Access, Microwave Transmission & Mobile Backhaul, Optical Transport, Mobile Core Network, Radio Access Network, Service Provider Routers & Switch).
“The fundamental challenges have not changed. Operators have a fixed capital intensity budget and capex is largely constrained by the revenue trajectory,” said Stefan Pongratz, Vice President and analyst with Dell’Oro Group. “What is complicating the situation is that the revenue pie remains fixed. Following some positive developments amidst the peak of the Covid-19 pandemic, our analysis shows that operator revenue growth slowed in 2023 and has more or less remained stagnant over the past decade. And based on the guidance, operators, in general, are not overly optimistic that emerging opportunities with generative AI, edge computing, enterprise 5G, FWA, and 5G-Advanced will expand the pie,” continued Pongratz.
Additional highlights from the Dell’Oro March 2024 Telecom Capex report:
- Global carrier revenues are expected to increase at a 1 percent CAGR over the next 3 years.
- Market conditions are expected to remain challenging in 2024. Worldwide telecom capex is now projected to decline at a mid-single-digit rate in 2024 and at a negative 2 to 3 percent CAGR by 2026.
- The mix between wireless and wireline remains largely unchanged, reflecting challenging times still ahead for wireless. Wireless related capex is on track to decline at a double-digit rate in the US in 2024.
- 5G era capital intensity ratios peaked in 2022 and are on track to approach 15 percent by 2026, down from 18 percent in 2022.
The market research firm and also forecasts optical transport spending (which includes 5G backhaul) to decline as well.
………………………………………………………………………………………………………………………………………………………………………………………………………………….
What’s more important is that mobile network traffic growth is slowing. In the latest Ericsson mobility report, the authors cut mobile data traffic figures for the second half of 2023, yet declared that the growth outlook was virtually unchanged.
William Webb, a consultant and senior advisor at Access Partnership, is one who’s called out the authors of the report for this leap in logic. “If lower numbers are being reported for 2023 … then why should the traffic growth rate predicted remain the same?” he posted on LinkedIn. He denounces the forecast as “a mess,” pointing out that the report, without any explanation, has somehow introduced a 10% jump in growth over 2023-24 to bring its new forecast into line with the old.
Separately, a new Analysys Mason paper says the telecom industry is running up against the limits of growth and faces a “crisis of bandwidth overproduction.” It says the telco responses to this looming crisis – volume price discounts and untried business models – replicate every other other industry in the same predicament. “Growth rates are not declining because of supply-side constraints such as spectrum or coverage; access networks have never been emptier,” the author argues. “Rather, the two principal drivers of traffic growth, smartphone usage and broadcast-to-streaming migration on mobile and fixed networks, respectively, have both run up against human limits; limited hours for engagement and the limits of human vision.”
If demand does not revive, then the lower unit costs brought about by over-investment in capacity will result in further deflation of margins and profitability, the paper maintains. It calls on telcos to reduce CAPEX to make available more resources to invest in M&A, into other adjacent infrastructure businesses, or in some key non-connectivity B2B segments.
………………………………………………………………………………………………………………………………………………………………………………………………………………….
References:
https://www.lightreading.com/6g/the-specter-of-a-capex-drought-looms-over-6g
Phil Harvey, Light Reading:
According to a recent report by Dell’Oro, the number of 5G SA networks commercially deployed by mobile network operators remains the same as at the end of 2023: around 50 5G SA networks.
Research firm Omdia estimates that 54 5G SA networks have been deployed so far, with both firms agreeing that there hasn’t been much growth over the last year.
Both firms agree that roughly one in six 5G networks are standalone. Omdia said 17% of service providers that deployed a 5G RAN have also deployed the 5G core. “The 5G SA market drives market growth, and only about 15% of the 5G networks (5G SA + 5G NSA) are 5G SA,” wrote Dave Bolan, research director at Dell’Oro Group, in an email to Light Reading.
“Without the 5G core, CSPs cannot benefit from network slicing or low-latency use cases, both of which are required for new revenue-generating use cases,” wrote Omdia’s Roberto Kompany, a principal analyst in the firm’s Service Provider Networks team.
Slow growth in the mobile core
The Dell’Oro data showed a 10% decline in the five-year revenue forecast for mobile core networks, indicating that service provider adoption of 5G SA networks is sluggish. The market is growing, but the new core network pieces aren’t deployed in a vacuum.
Mobile core and other 5G network equipment spending has been underwhelming for several quarters, and the big vendors are shedding staff to keep costs down. In the last year, Nokia has cut about 6,000 jobs, around 7% of its total workforce.
Omdia’s Kompany recently wrote that the top four core network vendors (Ericsson, Huawei, Nokia and ZTE) together captured nearly 70% of the 5G core market share last year. Omdia lists the 5G core components (network functions) as packet core, policy and charging; subscriber data management; routing and selection; and, finally, automation, orchestration and analytics.
The compounded annual growth rate (from 2023 to 2028) for mobile core networks is positive and is estimated to be between 5% and 10%, wrote Bolan. “Unfortunately, the 5G Core growth rate is insufficient to offset the negative growth rate for the 4G Evolved Packet Core (EPC), estimated to be between -15% and -20%, bringing the mobile core market average growth rate below 0%,” Bolan wrote.
5G SA is challenging for network operators. Deploying a cloud-native infrastructure in the mobile core can help telcos operate their networks in a way that’s more similar to hyperscalers. However, the architecture is relatively new and very complex. Non-standalone 5G (5G NSA), which hooks a 5G radio access network (RAN) to a 4G core, is less expensive and more straightforward.
“There’s a lot they must get right – RAN build out, telco cloud, and the 5G core itself – before they can offer SA to paying customers,” said Heavy Reading’s Senior Principal Analyst, Mobile Networks, Gabriel Brown.
“The other big factor is the rate at which subscribers/devices are added to the new 5G core once it does launch,” Brown added. “Even though some big operators are live with SA already, they don’t necessarily have many devices on the new core yet.”
In the US, T-Mobile and US Cellular have already launched 5G SA, and EchoStar is still building out its 5G SA network for its Boost Mobile customers. AT&T and Verizon have also discussed their plans to move to 5G SA.
“The customer migration strategy from 5G NSA to 5G SA is really the key swing factor,” Heavy Reading’s Brown said. “Generally, operators are being cautious because the risk of service disruption is high, and they judge it better to get it right than be fast. They want to offer something better with SA, so quality and reliability are critical.”
“In Europe, France and Italy have been behind due to the spectrum limitations,” said Dell’Oro’s Bolan. “Time will tell if the MNOs will choose 5G SA or 5G NSA. Unfortunately, most MNOs select 5G NSA, which has the lowest cost and is the most straightforward way to meet the capacity requirements for more subscribers’ bandwidth. Once an MNO selects the 5G NSA route, it may be years before they switch to 5G SA.”
To Brown’s earlier point, there’s a lot of background work happening but there’s no telling when it will show up in the numbers with new 5G SA network launches. New use cases and 5G capabilities are always just around the corner as technologies mature, standards advance and telcos get comfortable with the new reality of a 5G core, the use of new spectrum bands and devices and customer expectations. Overall market growth, as Dell’Oro’s numbers suggest, may take a while as the operators taking the 5G SA plunge get used to their new services at scale.
https://www.lightreading.com/mobile-core/why-5g-mobile-core-forecasts-keep-slipping
Juniper Research says annual operator investment into O-RAN (Open Radio Access Networks) will reach $11 billion in 2029; rising from $2 billion in 2024.’ That’s 5.5x growth over five years at a CAGR of over 40%. Contrast that with a recent forecast by Dell’Oro which forecasts total global RAN revenues will actually decline over next five years. All the signs are that Open RAN specialists are struggling, so this growth will have to come from the incumbent big vendors.
This culmination of nearly $40 billion of global investment into AI network automation by 2029 will be driven by the need to cater for increasing cellular connections and data.
“Operators must leverage AI-based traffic steering to improve connectivity services, such as enhanced mobile broadband, with network traffic generated by these connections being given priority steering to the base station offering the lowest latency to maximize the value proposition for users,” explained research author Alex Webb. https://www.juniperresearch.com/press/pressreleasesopen-ran-investment-by-operators-to-surge-in-next-five-years/
Microsoft has recently made cutbacks at its Azure for Operators business after struggling to win deals.
Intel, whose general-purpose silicon powers most data center servers, last week said it would cut 15% of jobs – a figure that equates to more than 18,000 roles, based on December reports – following a disastrous run of results. Non-core units often suffer during such retrenchment. In Intel’s case, that could mean the small telecom unit. It would be a setback for telcos that see general-purpose compute and the cloud as an answer to cost problems.
Staff numbers have fallen dramatically at the world’s biggest telcos outside Asia in the last decade with the outsourcing of jobs, sale of assets, focus on efficiency and slow creep of automation.
In the US, where laying off staff is easier, AT&T finished June with 146,000 employees, down from about 280,000 in 2017. Verizon’s headcount has fallen from 155,400 to 103,900 over the same period. In the UK, BT thinks it can finish the decade with between 75,000 and 90,000 workers, compared with 130,000 last year.
https://www.lightreading.com/5g/crisis-hit-european-telecom-sector-needs-a-reboot