Capex Watch: Expect Shrinkage in 2009
While a prediction that carriers will spend less on their networks in 2009 won't come as a shock to anyone in the industry, the suggested value of global network operator capex may come as more of a surprise -- and an encouraging one at that.
Infonetics estimates that worldwide capital spending by network operators is on course to reach $275 billion in 2008, an increase of 10.5 percent compared with 2007, though the research firm notes that much of that growth in value "is due to currency appreciation against the US dollar, which peaked in July 2008."
In 2009, though, Infonetics expects the global capex total to drop to around $269.5 billion, "led by big cuts by Asia Pacific service providers." Carrier capital investment should be about the same in 2010, followed by "a slow return to growth in 2011 with the start of a new investment cycle."
In his new report, "Service Provider Capex, Opex, ARPU, and Subscribers," Infonetics principal analyst Stéphane Téral notes that carriers are planning to "sweat their assets, deplete inventories, reallocate capital to revenue generating areas," and use some capital to fund share buyback schemes.
Téral says most operators "have clean balance sheets, so they are entering the global crisis on solid financial ground," though declines in market valuations will limit the level of funds available for investment.
The analyst believes the capex cuts to be made by operators in North America, EMEA (Europe, Middle East, and Africa), and CALA (Central and Latin America) will be in the "low-to-mid single-digit" range, as operators in that region have already been keeping their ratio of investment to revenues at a relatively low rate in recent years.
The bigger reductions will come in Russia and Asia/Pacific, where recent investment levels have been much higher. There, Téral expects "steep, double-digits capex cuts from some service providers."
Vendors have already been feeling the impact of carrier capex adjustments, while Nokia Corp. (NYSE: NOK) is planning for a downturn in fixed and mobile infrastructure spending in 2009 and reduced demand for handsets next year. (See Nokia Cuts Device, Networks Outlook, Hatteras Chops Headcount, Nortel Culls 1,300 Jobs, Loses $3.4B, and Slowdown Crunches Sonus, for examples.)
Of course, capex decisions will vary from market to market, and from carrier to carrier.
For example, the CEO of Millicom International Cellular, S.A. , which operates mobile networks in 16 countries in Africa, Asia/Pacific, and Latin America, and cable and broadband operations in five markets in Central America, announced this week at Morgan Stanley's annual Technology, Media, and Telecoms conference in Barcelona that he plans to cut annual capex to "around $1 billion" in 2009 from "slightly below $1.4 billion" this year.
And investment levels in certain Asia/Pacific markets, particularly China and India, could buck the trend as new mobile 3G spectrum is awarded and carriers look to build out new wireless data capabilities. (See Emerging Markets Offer Capex Hope.)
— Ray Le Maistre, International News Editor, Light Reading
Please do a followup on this story when the numbers are in. This looks ridiculously optimistic to me.
The difficult with all forecasts in the current environment: Analysts have never lived through a meltdown like the current one. Even the tech wreck was a poor example.