MTN Consulting’s Mid Year Update:
There are three different types of network operators: telecom operators (telcos), webscale network operators (webscalers), and carrier-neutral operators (CNNOs). In 2022, these three groups accounted for $4.1 trillion (T) in revenues, $559 billion (B) in capex, and 8.87 million employees. The report provides 2011-22 actuals and projections through 2027, and includes projections from past forecasts for reference.
Review of the 3 Market Segments:
1. Telco: Telecom is essentially a zero-growth industry. Specific countries and companies do grow from time to time, in part from market share shifts, the different timing of growth cycles, or M&A. But global telco revenues have hovered in a narrow range ($1.7-$1.9 trillion) since 2011, and this will likely remain true through 2027. In 2022, revenues were $1.78T, and will grow an average annual rate of 1.8% to reach $1.95T by 2027.
Capex continues to vary with technology upgrade cycles (e.g. 5G) and government actions (e.g. newly issued spectrum, or rural fiber subsidies). In 2022, capex totaled $322B, or 18.1% of revenues; that’s an all-time high capital intensity, for coverage timeframe (2011-present). Capex will decline slightly through 2025, though, and then rise modestly again to reach $321B in 2027, which would be a 16.5% capital intensity. US capex surged in 2022, but will drop dramatically in 2023; we already expected this, though, so the current forecast is not significantly different. Software capex is growing more slowly than expected, and now likely to remain under 20% of total capex for the forecast period.
Headcount in telecom is declining faster than expected, and now likely to fall below 4.2 million in 2027, from just under 4.6 million in 2022. Labor costs per head will revert to a growth trajectory in 2023, as telcos develop a more IT/software-centric workforce.
2. Webscalers: growth from webscale has lifted the overall network operator market over the last decade. Webscalers surged during COVID, by all measures – revenues, capex, employment. Demand for data center chips and related gear also surged. Now, parts of the sector are cutting back slightly.
In 2022, revenues were $2.23 trillion, up just 4% YoY, far less than the average growth of 12% per year from 2011-22. We expect revenues to grow at a ~6% CAGR through 2027. Webscale capex was $203B in 2022, a healthy increase from 2021; due in part to generative AI interest, capex will grow again in 2023 and 2024, dip for a couple years of capacity absorption, and then end 2027 at around $231B. A larger portion of this capex will be for Network/IT/software investments: around 46%, from 44% in 2022. R&D spending by webscalers will remain high but fall from the record-breaking level of 2022 (12.0% of revenues), to about 10% in 2027. As topline growth gets harder for webscalers, they will become more cost conscious and short-term oriented.
3. CNNOs: the carrier-neutral sector remains tiny, with just $95B in 2022 revenues, but will grow to about $132B by 2027. Webscalers and telcos alike will both rely more on CNNOs over time for expansion of their data center, tower and fiber footprints.
Telcos will continue to spin out portions of their infrastructure to third-parties – both traditional CNNOs, and joint ventures like Gigapower, the AT&T-Blackrock partnership. Total CNNO capex for 2022 was $34B, and will grow to about $45B by 2027; a large chunk of the CNNO sector’s expansion will be inorganic, though, via acquisition of existing assets from other sectors. By 2027, the CNNO sector will have under its management approximately 3.7 million cell towers (2022: 3.3M), 1,607 data centers (2022: 1,224), and 1.1M route miles of fiber (2022: 960K).
Source: MTN Consulting
Market drivers, constraints and risk factors:
This forecast represents only a modest revision from the edition published in December 2022. Most of the realities facing the operator market today were anticipated by our last forecast. For instance, we already expected that service revenues were not growing for telcos, and that 5G device sales distorted the market; an MTN Consulting report published in 2Q23 confirmed this fact, and supports a more cautious outlook for telco spending. We also thought that open RAN was overhyped, and was not likely to change the capex calculus for most established mobile operators. The 2023 dip in US telco capex was baked into our old forecast. The one big sector-specific change from the last forecast to this one is, the recent spike in interest in generative AI. This is a plus for the webscale market’s capex outlook, even if new revenue models are unclear and government regulations will slow adoption.
What about the macroeconomic climate? Wars, economic growth, inflation, interest rates, climate change, etc. Russia’s war on Ukraine remains ongoing, but hasn’t expanded to new countries. China has not invaded Taiwan as of yet, although this is a serious risk over the 5-year forecast horizon. Global economic growth is weaker than historic averages – about 3% this year and next, per the IMF – but inflation is easing, and the IMF’s GDP growth outlook improved slightly from April to July 2023. Interest rates continue to rise; the US federal funds rate has risen from 3.83% to 5.08% between 12/22 and 7/23, and further increases seem likely. Rising interest rates were already assumed to modestly depress 2023-24 capex, though.
Climate change is the one macro area that is quite a bit different than 8 months ago. The news gets worse each week. Government action continues to be gradual and consensus is hard to achieve. Increasingly the pressure will be on private companies to make voluntary, verifiable changes in how they operate. This doesn’t impact the forecast directly, but will impact how operators spend their tech budgets, as we have discussed in separate reports. Energy, sustainability and climate change will continue to be key themes in MTN Consulting research.
MTN Consulting: Top Telco Network Infrastructure (equipment) vendors + revenue growth changes favor cloud service providers
According to a new report by Technavio, the telecom services market is forecast to grow by $625.5 billion from 2022 to 2027, progressing at a CAGR of 6.13% during the forecast period. APAC is estimated to contribute 33% market growth (more details below). The report offers an up-to-date analysis regarding the current global market scenario, the latest trends and drivers, and the overall market environment.
Increased demand for broadband is the key factor driving the growth of the global telecom services market. The demand for high-speed broadband connections has increased due to the rise in the number of internet users globally. As a result, the companies are providing faster speeds and higher bandwidths by upgrading their network infrastructure. The world is becoming connected through the internet so the demand for telecom services is growing rapidly. Furthermore, people and businesses require fast and reliable connectivity to access information and services, stay connected with each other, and conduct their daily activities. Hence, these factors will boost the growth of the telecom services market during the forecast period.
Telecom service is provided by a telecommunication provider or a specified set of user-information transfer capabilities provided to a group of users by a telecommunication system. Telecom services include all forms of voice telephony and data transmission as well as leasing of circuit capacity.
- Increased demand for broadband
- Mergers and acquisitions
- Increase in global mobile data traffic
- Technological advancements
- Adoption of 5g technology
- High investment by vendors
- Regulatory compliance
- Increasing competition among vendors
- Growing concerns for environment
APAC region leading:
- APAC dominated the global telecom services market with the largest market share in 2022.
- APAC is the world’s most populous continent, and its population is increasing rapidly.
- As the population grows, so does the demand for telecom services, such as mobile phones and Internet access.
- Many APAC countries are experiencing rapid economic development, which is increasing the demand for telecom services.
- As people become more affluent, they are more likely to want access to mobile phones and high-speed Internet. APAC is experiencing a significant shift from rural to urban living.
- As people move to cities, they require more advanced telecom services to stay connected and conduct business.
- The rapid pace of technological change is transforming the way people live, work, and communicate.
- In APAC, there is a strong focus on digital transformation, which is driving the demand for telecom services.
- Thus, due to population growth, economic development, urbanization, and digital transformation, the demand for telecom services is booming in APAC, which may positively impact the growth of the global telecom services market during the forecast period.In 2020, the COVID-19 pandemic increased the demand for telecom services as more people work, learn, and socialize from home.
- As a result, there has been a surge in the demand for high-speed Internet, video conferencing, and online entertainment services.
- The increased demand for telecom services has also led to network congestion in some areas.
- With more people using the Internet simultaneously, network speeds can slow down, making it difficult for people to work and communicate effectively.
- The pandemic has disrupted global supply chains, which has impacted the availability of telecom equipment and devices.
- This has led to delays in the rollout of new infrastructure and has impacted the supply of mobile devices.
- However, in late 2020, the initiation of large-scale vaccination programs led to the lifting of lockdown restrictions and the resumption of industrial operations, which increased the demand for telecom services in commercial end-users as many people started going to offices.
Worldwide spending on Telecom Services and Pay TV Services reached $1,478 billion in 2022, increasing by 2.2% year over year, according to the International Data Corporation (IDC) Worldwide Semiannual Telecom Services Tracker. IDC expects Worldwide spending on Telecom and Pay TV services will increase by 2.0% next year and reach a total of $1,541 billion. The latest forecast is slightly more optimistic compared to the version published in November last year as it assumes a 0.3 percentage point higher growth in 2023. IDC believes this acceleration is a consequence of the increase in tariffs of telecommunication services fueled by inflation.
This is the second time in the last six months that we have increased our forecast for the telecom services market and positive adjustments have been made for all global regions. This confirms the thesis that inflation is equally happening in all parts of the world and that operators are all behaving in similar way when their profitability is threatened by the inflationary pressures. And what is more, the effects that we observe now are the outcome of the initial tariff adjustments that were generally happening in mid-2022. According to the latest IMF forecasts, inflation is here to stay for the next three years at least which means that operators will continue to increase tariffs, clients will be paying more for telco services, and the total nominal value of the market will be growing at faster pace. This is the explanation for why we increased our forecast not only for 2023, but for the entire first half of the forecast period.
|Global Regional Services Revenue and Year-on-Year Growth (revenues in $B)|
|Global Region||2021 Revenue||2022 Revenue||22/21
|Source: IDC Worldwide Semiannual Services Tracker – 2H 2022|
Our forecast for Asia-Pacific was boosted by 0.7 percentage points, for Americas by 0.3 percentage points, and for EMEA by 0.1 percentage points. At the first sight, the magnitude of change in EMEA, region that is witnessing a higher-than-average inflation while struggling to find a replacement for the cheap Russian energy, might seem relatively low. It can be explained by 1) the war in Ukraine and the related economic sanctions imposed to Russia, the biggest market of the CEE subregion, and 2) significant slowdown of the major WE economies driven by the drastic growth of the central banks’ interest rates. The fact that during the previous update the EMEA region witnessed the highest upward revision should also be taken into consideration. Nonetheless, the fastest growth this year, as well as in the entire forecast period, is expected in the Asia/Pacific region, fueled by the relatively lower saturation of the markets in less-developed countries.
High inflation is not good news for any market, because the positive boost it produces is only nominal. A closer look at the forecasted growth rates reveals that they are much lower than the annual inflation rates published by monetary statisticians, which means that the market is witnessing a decline in value in real terms. For that reason, the telecom operators continue to heavily invest into advanced telco technologies. They hope that the migration to all-IP and new-generation access (NGA) broadband will help offset the fixed and mobile voice decline. They also believe that 5G will unlock new opportunities by allowing massive machine-type communications and ultra-reliable low-latency communications.
The companies are also increasing the pace of digitalization and software-ization of their business processes, create new go-to-market strategies based on data and intelligence, and deploy innovative business models based on telco-as-a-platform and co-creation within ecosystems. They also look for additional revenue streams in the non-telco areas such as IoT, data center, cloud, AR/VR, IT services, VoD, enterprise vertical solutions, financial solutions, cyber security, digital media, e-commerce, etc.
“Telecom operators are completely transforming – from providers of traditional commodity-style services they are becoming modern all-round full-stack technology suppliers,” says Kresimir Alic, Research Director, Worldwide Telecom Services. “In that way they become leaders of the digital transformation revolution and rightly hope they can acquire one of the central positions in the new digitalized world.”
About IDC Trackers:
IDC Tracker products provide accurate and timely market size, vendor share, and forecasts for hundreds of technology markets from more than 100 countries around the globe. Using proprietary tools and research processes, IDC’s Trackers are updated on a semiannual, quarterly, and monthly basis. Tracker results are delivered to clients in user-friendly excel deliverables and on-line query tools.
For more information about IDC’s Worldwide Semiannual Telecom Services Tracker, please contact Kathy Nagamine at 650-350-6423 or [email protected].
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