Emerging Markets Offer Capex Hope

When the going gets tough, the tough look for opportunities in the emerging markets.

OK, so that's something of a variation on the finger-snappin' Billy Ocean classic, but it's an appropriate lyric for the telecom sector just now, as companies come to terms with the global slowdown. See our coverage of the bad news, so far: And while the so-called emerging markets have been the focus of many telecom players' growth strategies for some time, there's clearly still plenty of gas left in that tank to help operators and vendors alike keep their sales teams busy in the coming months and years.

China's capex lifeline
There's plenty of fixed and wireless network construction in China's pipeline, especially now that the carrier reorganization process and the Olympics are out of the way. (See Mobile, Optical Fuels ZTE's Growth, China Telecom Unveils CDMA Plans, and China Begins $70B Carrier Revamp.)

So how big is the near-term opportunity? One analyst puts the expected total capital expenditure of China's telecom sector at $44 billion during 2009, according to Chinese news site Interfax.

That outlook came just as the Chinese government, which is keen to shore up the national economy, announced a $586 million stimulus package and plans to ease investment and lending, moves that are expected to indirectly benefit the telecom sector. That move boosted confidence in the Chinese market, according to this report from the Associated Press.

However large the combined capex of the Chinese service providers during 2009, it's likely that local vendors Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) will be major beneficiaries.

ZTE announced to the Hong Kong Stock Exchange Monday that it has signed a CDMA infrastructure contract with China Telecom Corp. Ltd. (NYSE: CHA) worth 1.27 billion Renminbi (US$186 million), while local media reports suggest the vendor has just won between 28 percent and 30 percent of a RMB30 billion ($4.4 billion) TD-SCDMA 3G equipment tender from China Mobile Communications Corp. (See China Mobile to Unleash 3G Next Year.)

ZTE's share price closed Monday up nearly 10 percent at HK$13.48.

Other Chinese players fared well in China Mobile's TD-SCDMA contract award process, as Datang Telecom Technology Co. Ltd. , along with partners Alcatel Shanghai Bell Co. Ltd. and optical equipment firm FiberHome Technologies Group , reportedly won between 38 percent and 40 percent of the tender, which involves the construction of 23,000 base stations in 28 cities.

TD Tech Ltd. , a TD-SCDMA joint venture between Nokia Networks and Huawei, reportedly won about 25 percent of the tender, while Ericsson AB (Nasdaq: ERIC) and state-owned Potevio Co. Ltd. won single-digit shares.

To Page 2

1 of 2
Next Page
brtechy 12/5/2012 | 3:26:55 PM
re: Emerging Markets Offer Capex Hope In addition to the obvious numbers and growth prospects of China and India in mobile subscribers, I believe two other factors need to be taken into account when looking at Emerging Markets growth:

1. Other parts of Emerging - Latin America, Middle East and Africa, Russia, CIS and Eastern Europe
2. Massive growth in Broadband infrastructure driving IP core, edge, applications

If we look at 10Qs of many different companies, most of them posted positive revenue and order results in Latin America, when compared to same Q last year (even Nortel!). The vendors who are exploring this trend not only in the obvious places are the ones capturing more than their fair share. Interesting to notice that as much as Huawei and ZTE are focused in Asia, so are they in Latin America, having made great inroads there in the last 5 years. Cisco, Juniper, Alcalu and NSN are all strongly there as well.

Inasmuch as Middle East was bashed by oil prices coming down, the same remains true for projects there, fueled by the need to diversify from oil into knowledge based economies. Likely we will see a couple of quarters or more of relative deceleration given the huge growth last year, but then back again to the large projects in Saudi, Dubai, Qatar, etc.

Russia and Eastern Europe are also great areas of opportunity, and Russia, apart from a tightly controlled marketas far as entrepreneurship is concerned (big groups, tough politics), the needs are tremendous.

Broadband, in addition to mobile, is fueling a lot of the growth in all of these regions in Emerging. Countries are discovering the power of data as much as the power of mobile comms, and in several places broadband continues to grow at a pace of close to 100% a year (e.g. Colombia, Brazil, Argentina). In a way that has never been seen before, we have multiple countries throughout the world creating govewrnment dictated Digital Agendas and strategic plans, timidly (yet) resembling what Korea did many years back.

More food for thought on Emerging Markets.
scfm 12/5/2012 | 3:26:54 PM
re: Emerging Markets Offer Capex Hope Unless my calculator is broken, this works out to about $87 per line. Last year NSN was having trouble accepting a BSNL deal at $90 per line (see http://www.lightreading.com/do....

What makes this build so much more profitable for the equipment companies now?

While there may be spending going on in these regions, it isn't going to do much for anyone's bottom line.
oemarket_com 12/5/2012 | 3:26:50 PM
re: Emerging Markets Offer Capex Hope In fact the Chinese equipment vendors are focusing on small telcos in "smaller countries", i.e. those in southern Africa. They have made impressive progress in securing those markets, which might be ignored by the traditional "major" equipment providers.

As telecom networks are rapidly becoming utility-like infrastructure, more and more developing countries are increasing their spending on this, to catch up with developed countries. So it is reasonable to expect that more chances are available in emerging markets.
Sign In