Global carrier capital expenditure (capex) is set to fall by 2 percent in 2009, according to a new forecast from Infonetics Research Inc.
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."
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
re: Capex Watch: Expect Shrinkage in 2009 Global carrier capital expenditure (capex) is set to fall by 2 percent in 2009
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.
re: Capex Watch: Expect Shrinkage in 2009 Nobody knows what lies ahead of us as far as the severity and length of this downturn. Any speculation at this point is just that, although it feels like it going to be really severe and deep at this point. So, maybe a 2% decline next year is optimistic. However, if revenues really drive capex, what are the chances that they fall off a cliff next year....or is it more likely the following year that we have to really worry about, if worse comes to worse?
It seems likely that consumers will be reluctant to give up their phones and email for contacting friends and family, until they're on the verge of becoming homeless. Likewise, entertainment at home from movies to web surfing may place broadband services towards the bottom of the list where consumers cut first, right above the absolute necessities of food, shelter, and transportation. Logic dictates that consumers will chop the more expensive entertainment forms first, and as time at home increases so will home entertainment play a larger role. On the enterprise side, my understanding is that three year capex cylces are the basically the norm, so the question is how long will the current projects already in progress sustain revenues for the next couple of years? True, everyone is anticipating that new projects will be scaled back, pushed out, or even cancelled, we still have have a buffer in place for next year. Its 2010 that really may be the killer if the incoming administration can't turn this around.
re: Capex Watch: Expect Shrinkage in 2009 But if what has been said lately about banks still not lending, how are companies going to get the money to spend on CAPEX? And let's face, we are barely 8 years away from the Telecom bubble burst, how many of these companies will get gun shy about spending. Even Verizon, with their "build it and they will come" mentality may ease off the accelerator.
re: Capex Watch: Expect Shrinkage in 2009 Remember folks, this is a global outlook, not U.S. capex.... I'm sure there is going to be dramatic differences country to country -- but I don't have the full report, so....
It'll be interesting to watch the 2009 capex projections from the major carriers roll in during the coming 2 to 3 months, though...
Personally, I believe it will be a fantastic outcome if the capex total follows Infonetics' forecasts.
But even if the capital spending does hold at that rate, what will happen to vendor margins, which are (in many cases) already pretty thin? Even if spending does hold up better than anticipated, there might not be much in the way of operating profit to go around for suppliers...
re: Capex Watch: Expect Shrinkage in 2009 If capex is still primarily funded thru revenues and not debt, that that's still the key.
Hopefully, the consumer side doesn't implode next year and, enterprise has at least another year of carry thru from projects-in-progress. That may provide enough of a buffer to avoid a precipitous downturn in 2009. If so, it may buy just enough time for the new "miracle administration" to perform its magic. ;)
re: Capex Watch: Expect Shrinkage in 2009 Ray, from what I have read and experienced, big downturns in capex usually 'follow' a recession, just like in the construction business....where most projects get completed during the first year of the downturn, but with no new construction, the industry gets hit the hardest in the following year. Now, if 2009 is the 'second' year of this recession...if as some are saying (I guess that depends on the industry), then 2009 will be much worse than a 2% decline.
re: Capex Watch: Expect Shrinkage in 2009 Absolutely, yes, there is global impact all round. There will belt-tightening all round.
I was simply guarding against any U.S.-centricity -- not every market has a new administration, for instance. Certainly wasn't a criticism of any of the posts or any of the points made.
And like I said, if this industry gets away with only a 2% drop in capex in 2009 that would need to be regarded as a realy positive outcome.
As far a turtle mode, that may be correct for new spending, but most of those ongoing projects slated for completion next year or so have already been funded and will be completed. That's why some fear the big crunch may come in 2010.
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