Revenue growth rates for communications service providers (CSPs) remain modest, but CSPs will continue to invest heavily in their networks, expects Ovum. With global CSP capital expenditures (capex) forecasted to total more than US$2.1tn from 2014–19, the global analyst firm warns CSPs must continue to do less with more, leveraging new technologies, network designs, vendors, and operating models.
In a new report*, Ovum reveals 2019 capex is projected to be US$367bn, yet vendors face a tougher marketplace as spending is being pressured by modest revenue outlooks as growth remains weak for most carriers, particularly fixed carriers. Also, the rise of more software- and IT-centric opportunities, driven by the emergence of SDN (software-defined networking) and network function virtualization (NFV), means traditional telecom vendors will come up against a different set of vendors going after CSPs’ network budget dollars. Yet, with a diverse array of digital media companies now spending heavily on CSP-grade network infrastructure, vendor-addressable capex could increase by US$50bn or more in 2019, presenting a promising upside for vendors selling network infrastructure.
Report author and principal network infrastructure analyst Matt Walker explains: “The telecom world is changing. Established market boundaries are falling by the wayside. Competition is tougher, service innovation is faster, and margins are often slimmer. Value (and profits) are shifting among industry segments. There are two things to remember in all of this. First, most of this change is great for the consumer. Users are capturing enormous benefits from the technology investments and new business models of CSPs and adjacent market players. Second, there are upsides to this industry change for vendors. Despite flattish CSP capex, there is a new sector of companies building network infrastructure, partially offsetting the CSP weakness. To profit from this digital media growth, though, vendors will need strengths in both telecom/hardware and IT/software, and learn to serve this new customer type.”
Elsewhere, the analysis reveals three very different country markets make up 45 percent of expected CSP 2014–19 capex: the US, China, and Japan. “The competitive landscape of CSPs differs starkly across these markets, as do regulations, demographics, local vendors, and even technology standards. These markets are expensive to address, requiring significant local investment (e.g. R&D facilities) for non-local companies,” says Walker. The remainder of the top 15 market list includes countries from all major regions: Brazil, Russia, UK, Canada, Germany, India, Italy, France, Australia, Korea, Spain, and Mexico. Beyond the top 15, capex is broadly distributed among a long tail of smaller country markets, from Argentina (0.7% of 2014–19 capex) to Thailand (0.8%) and beyond.
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