Optical/IP Networks

Insider Sees Capex Growth

When the subject is big carrier capex spending, a little growth is a big deal.

According to the "2005 U.S. Wireline Capex Preview" released yesterday by Light Reading Insider, Light Reading’s paid subscription service, North America's "Big Seven" telecom carriers will still be taking a conservative approach to capex. But the predicted 1 percent increase in wireline capex spending is welcome news given the 20 percent declines exhibited on a yearly basis between 2001 and 2003.

The Big Seven, by the way, is the group that includes the four Bell companies -- BellSouth Corp. (NYSE: BLS), Qwest Communications International Inc. (NYSE: Q), SBC Communications Inc. (NYSE: SBC), and Verizon Communications Inc. (NYSE: VZ) -- and the three major long-distance carriers -- Sprint Corp. (NYSE: FON), AT&T Corp. (NYSE: T), and MCI Inc. (Nasdaq: MCIP).

According to the Insider, available here, overall telecom capex will grow 4.5 percent to $44.4 billion for 2005, driven by strong spending on wireless networks (up 11 percent to $19.3 billion) in 2005 (see LR Insider Sees Telco Capex Uptick).

The report highlights the key drivers of this as sustained interest, notably pinpointing which carrier requests for proposals (RFPs) will likely lead to the biggest spending. Following are some of the key RFPs that will circulate in 2005, and the likely winners of those deals:

  • Alcatel SA (NYSE: ALA; Paris: CGEP:PA), which already has won a large stake in SBC’s FTTN initiative, is the early favorite to be named as supplier for a BellSouth triple-play initiative during 2005 (see BellSouth Picks IPTV Finalists).

  • Qwest’s broadband initiatives are on hold, yet Sonus is the expected benefiary as the carrier continues building out its VOIP services during 2005.

  • Redback Networks Inc. (Nasdaq: RBAK), Juniper Networks Inc. (Nasdaq: JNPR), and Copper Mountain Networks Inc. (Nasdaq: CMTN) will battle for an edge equipment RFP, and Microsoft Corp.'s (Nasdaq: MSFT) involvement will increase in IPTV, as additional pieces of SBC’s Project Lightspeed continue to reach contract stage.

  • Verizon Communications Inc. (NYSE: VZ) will continue to concentrate on DSL aggregation in 2005, and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), Alcatel, Cisco Systems Inc. (Nasdaq: CSCO) and/or Juniper will handle the multiservice IP/MPLS transport.

  • Lucent Technologies Inc. (NYSE: LU), Sonus Networks Inc. (Nasdaq: SONS), and Nortel Networks Ltd. (NYSE/Toronto: NT) will win contracts with Sprint and AT&T, both of which have plans to offer VOIP services to cable companies wishing to round out their triple-play offerings.

The report suggests that carrier initiatives such as those mentioned above will kick off prolonged spending cycles, likely through the end of the decade. Vendors such as Motorola Inc. (NYSE: MOT), Alcatel, and Microsoft that have won large RFPs at the beginning of carrier IP initiatives will reinforce their incumbent supplier status and continue to reap the capex rewards.

Another healthy trend highlighted by the Insider: Carrier capex spending as a percentage of income returned finally swung back to historic mid-teen levels during 2004, and is expected to remain there in 2005.

— Mark Sullivan, Reporter, Light Reading

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