New market research reports from Infonetics and Juniper Research are summarized in this article which also looks at the critical issues to transform LTE Capex into revenue for telcos.
I. After a second straight year of decline, Infonetics Research predicts telecom carrier capital spending (CAPEX) to be up a modest 1.6% next year. In its just released updated report on Service Provider Capex, Opex, ARPU, and Subscribers, Infonetics analyzes telco capex, operational expenses (opex), revenue per user and subscriber trends by operator, operator-type, region, and telecom equipment segment. The firm predicts video, 3G, and LTE to be the top telco investments in the coming year.
"Telecom capital expenditures are bottoming out at US$289 billion this year, and our cycle-based forecast model and conversations with service providers indicate that a new investment cycle will start in 2011 and last several years, with capex growing to US$321 billion in 2014 before growth slows again. Overall, capital intensities will continue to slowly decline through at least 2014 because the world's telecom infrastructure is essentially built out, and unless a nuclear bomb wipes out some of it, there is no need to increase capital intensities," says Stéphane Téral, principal analyst for mobile and fixed-mobile-convergence infrastructure at Infonetics Research.
Infonetics' new report tracks revenue, capex, capital intensities (capex-to-revenue ratios), opex, ARPU, subscribers, and access lines of 184 public and semi-private/government-owned service providers on a monthly and biannual basis. The report includes past, current, and forecast capex and revenue data through 2014 and equipment forecasts through 2010, market drivers, analysis, service provider demographics, and customizable pivot tables to analyze data by service provider, service provider type, and equipment category.
The report includes a Fundamental Telecom/Datacom Market Drivers section with analysis of overall market conditions for service providers, enterprises, subscribers and the global economy. Regions covered in the report include North America, EMEA (Europe, Middle East, Africa), Asia Pacific, CALA (Central and Latin America), and worldwide.
- From its peak in 2008, worldwide service provider capex declined 5.3% in 2009, and is on track to decline another 3% in 2010.
- The dip in capex in 2010 is due mainly to the fact that carriers in China, which invested heavily in network upgrades in 2009, have completed their 3G rollouts.
- Infonetics Research forecasts a 1.6% pickup in telecom carrier capex in 2011, marking the start of a new investment cycle.
- Despite the overall decline in service provider capex in 2010, some telecom equipment segments are faring well, including video infrastructure and IP routers/carrier Ethernet switches, which saw double-digit worldwide revenue increases in the first half of 2010.
- Infonetics expects the major areas of investment from 2011 to 2014 to be fiber-based wireline broadband (FTTx), 2G mobile network capacity expansion, network migration from 2G to 3G, and migration to LTE (mobile broadband will follow).
- Low equipment pricing resulting from fierce competition between western and Chinese vendors is giving service providers incentive to cap their capex budget and buy more equipment with lower budgets.
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II. Meanwhile, Juniper Research forecasts that global LTE service revenues will exceed $200bn by 2015, from a standing start in 2011. The firm predicts that the first beneficiaries of LTE mobile broadband networks will be business users based in developed countries, led by the US and Japan amongst other countries. Juniper expects that LTE premium services for high-end business users will be critical revenue drivers for mobile operators. Indeed, Verizon seems more focused on laptop-centric business users in its marketing. Dan Hays, a telecommunications consultant for PRTM in Washington, said LTE will be "very compelling for businesses, especially with the emergence of data-heavy applications such as video chat over wireless."
Howard Wilcox, author of the new 4G LTE Revenue Opportunities Report noted: “Our business modeling demonstrated that high traffic enterprise subscribers using web, email and video services will be the critical early adopter segment to benefit from LTE. There is an opportunity for premium pricing plans that will drive service revenues and the report shows this.”
- Operators can attract and retain high-end business users through premium services which could generate double the ARPU in a high usage scenario.
- Consumer users will typically spend at only about half the monthly rate of enterprise users.
- North America, Far East & China and Western Europe will together account for nearly 90% of LTE service revenues by 2015.
- Revenues from consumer users will remain under half of total revenues until at least 2015.
Juniper's 4G LTE Whitepaper and 4G LTE video and further details of the study, 4G LTE Revenue Opportunities: Business Models, Scenarios and Operator Strategies 2010-2015 can be downloaded from www.juniperresearch.com. Alternatively please contact John Levett at john dot levett at juniperresearch dot com, telephone +44(0)1256 830002.
The common thread in these two market research reports is the growth forecast for LTE capex and service revenues. We don't doubt that it will happen, but there are several key concerns that will drive LTE revenue growth, in our opinion. Here are just a few:
- Will there be sufficient coverage to attract a critical mass of subscribers? Will the pricing plans be attractive to both business and consumer customers?
- How well will LTE interoperate/ handoff with 3G and (to a lesser extent) mobile WiMAX? That is, when you move from one network coverage area to another, will you retain seamless connectivity?
- If there is limited coverage and/or broken hand-offs, then we believe LTE will be reduced to a fixed line replacement service for the immediate future.
- What kind of devices, e.g. netbooks, notebooks, tablets, smart phones, etc, will be available and when? We think that LTE can't be much more expensive than 3G to attract a crticial mass of subscribers. Telcos may have to rely on "forward pricing" to stimulate demand, especially while few LTE devices are available (which limits customer choice).
- Attractive "4G" apps that take advantage of low latency, RFI awareness, or other attributes of LTE. These could be particularly valuable for mobile M2M apps, e.g. video surveillance in a police car, medical diagnosis in an ambulance, first responder maps to pinpoint location, etc.
Please also see this article on Infonetics LTE Market Forecast + our own LTE Carrier Survey: