The end of telecoms history
Analysys Mason’s gloomy CAPEX forecast: “there will not be a cyclical recovery”
Telco capex declined worldwide in 2023, and predictions in end-of-financial year results indicate further declines this year. Analysys Mason warns that a “long decline” in capital expenditure has now started. “There will not be a cyclical recovery,” says one subhead (see below). Analysys Mason crunched a lot of numbers to arrive at this conclusion, processing historical data for about 50 of the largest operators in the world. Importantly, it also looked at the long-term guidance issued by those companies. Capex has peaked partly because telcos in many regions have completed or are near completing a once-in-a-lifetime upgrade to full-fiber networks. Clearly, that’s bad news for companies selling the actual fiber. Operators will continue to invest in the active electronics for these lines, but that represents a “tiny fraction” of the initial cost.
This new Analysys Mason gloomy CAPEX forecast comes after Dell’Oro and Omdia (owned by Informa) previously forecast another sharp fall in telco spending on mobile network products this year after the big dip of 2023.
Figure 1. below aggregates change in capex, excluding spectrum, in 2023 (or FY2023/2024) for 50 of the largest operators in the world, all with annual capex of over USD1 billion in 2023. These operators account for about 78% of telecoms capex worldwide. Of the 42 operators that provided guidance on capex in 2024, 28 forecast a fall. A notable class of exceptions consisted of cable operators and latecomers to FTTP upgrade, but most of the emerging-market-focused operators indicated a decline.
The steepest decline was in North America. The decline was steeper for the three largest mobile network operator (MNO) groups (–18.1%). This was offset by rises in capex by the two large US cablecos, for which upgrades of HFC plant are now an imperative. The obvious reason for the sharp decline is the near-completion of 5G roll-out, although FTTP capex remains flat.
In China, capex was flat overall. This disguises a decline in 5G and fixed broadband capex, which, taken together with transmission, fell 7% in 2023. The delta of capex has gone on what operators call ‘computility’ (compute power in data centers and edge) and capabilities (developing the ability to serve mainly the industrial enterprise). Together these two items now account for about 35% of operator capex.
In Japan and South Korea, capex was also more or less flat (+0.5%). As in China, a high proportion of capex in Japan now goes on adjacent lines of business.
Capex declined by 5.5% in Europe. The European figure disguises the impact of the large number of smaller players in the continent. 5G spending has peaked, but so too has FTTP spending. FTTP spend represents a very high share of capex in Europe (about one half), although this is distributed differently across individual countries. Countries like France and Spain have passed that peak, but even in the UK, a relatively late starter, spend has plateaued. Among operators in emerging markets, the smallest group in absolute capex terms, there was a rise of 8%, steady now for three years running, driven almost entirely by India, and offset by declines elsewhere.
There will not be cyclical recovery of capex:
Operators’ longer-term projections of capex suggest, if anything, steepening declines in capex. Our forecasts indicate that capital intensity (capex/revenue) will fall from around 20% now to 12–14% by the end of the decade. Capex will fall basically because customers do not need more than the 1Gbit/s fibre and unlimited 5G that the current networks are easily capable of delivering, and growth in measurable demand slows every year. This will have the following effects:
•Fall in fixed access spend. Capex on FTTP is essentially a one-off investment in passive assets with very long useful lives. Future capex on upgrades (in effect replacements) of FTTP actives will come at a tiny fraction of this cost. The pipeline of plans for commercial build is running dry, although this is offset by some hefty subsidies for rural build, particularly in the USA. Those cablecos that have not already started will have to brace themselves for programs of replacement of HFC/DOCSIS by FTTP/xPON.
•We expect only limited uplift for 5G SA/5G Advanced. This is in part because some operators will not be able to justify a further upgrade after 5G NSA, in part because of slack demand, and in part because the sums involved will be lower than for the roll-out of 5G NSA.
•6G will not be capex-intensive. There is little appetite in free-market economies without centralised planning (and perhaps not so much even there) for a capex-intensive generational upgrade to 6G. There will be no cyclical uplift.
•There will be more outsourcing, i.e. replacement of capex by an opex line. This occurs mainly in infrastructure, but also in migrations of operations (IT capex) to the cloud. Yet this does not mean that capex is simply shifting from one class of business to another; infra companies exist in a world with similar constraints.
•In these circumstances there is a clear case for capex investment in anything that maximizes the efficient (and sustainable) use of the physical assets as they stand, and unlocks any opportunities that exist in new business-models. This is prominent in many operator outlooks.
…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
William Webb, an independent consultant and former executive at UK telecom regulator Ofcom, forecasts an S-curve flattening by 2027. In a forthcoming book called “The end of telecoms history,” Webb returns to predictions he first made in 2016 to gauge their accuracy. Using recent historical data from Barclays, he was able to show a close alignment with the S-curve he drew about eight years ago. If this behavior continues, growth rates “will fall to near zero by around 2027, with significant variations by country,” says Webb in his book, giving a sneak preview to Light Reading.
Webb’s broad rationale is that there is an upper limit on daily gigabyte consumption, just as there is only so much the average person can eat or drink. All Webb had to do was assume there will be some future gorging by customers on high-quality video, the most calorific meal for any smartphone. “Once they are watching video for all their free moments while downloading updates and attachments there is little more that they could usefully download,” he writes.
What of future services people do not currently enjoy? Outside virtual reality – which, for safety reasons, will probably always happen in a fixed-line environment – no app seems likely to chew through gigabytes as hungrily as moving images do in high definition. Webb clearly doubts the sort of artificial intelligence (AI) services being advertised by Apple will have much impact whatsoever.
“There may be substantially more traffic between data centers as models are trained but this will flow across high-capacity fiber connections which can be expanded easily if needed,” he told Light Reading by email. “At present AI interactions are generally in the form of text, which amounts to miniscule amounts of traffic.”
“Indeed, if time is diverted from consuming video to AI interactions, then AI may reduce the amount of network traffic,” he continued. Even if AI is used in future to create images and videos, rather than words, it will probably make no difference given the amount of video already consumed, merely substituting for more traditional forms of content, said Webb.
For those confident that data traffic growth stimulates investment, the other problem is the lack of any correlation between volumes and costs. Advanced networks are designed to cope with usage up to a certain high threshold before an upgrade is needed. Headline expenses have not risen in lockstep with gigabytes.
References:
https://www.lightreading.com/5g/ericsson-and-nokia-may-be-stuck-with-skinflint-customers-for-years
Dell’Oro & Omdia: Global RAN market declined in 2023 and again in 2024
U.S. Network Operators and Equipment Companies Agree: 5G CAPEX slowing more than expected
Dell’Oro: Optical Transport, Mobile Core Network & Cable CPE shipments all declined in 1Q-2024
Dell’Oro: 2023 global telecom equipment revenues declined 5% YoY; Huawei increases its #1 position
Where Have You Gone 5G? Midband spectrum, FWA, 2024 decline in CAPEX and RAN revenue
“The “5G Train Wreck” we predicted five years ago has come to pass. With the possible exception of China and South Korea, 5G has been an unmitigated failure- for carriers, network equipment companies, and subscribers/customers. And there haven’t been any significant performance advantages over 4G.”