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3, MARCH 2009
Many companies must be wondering how long the hard times will last, and how deep they will
bite. In its recent poll of readers, Light Reading found that 39 percent of them thought global
capex would fall by more than 10 percent in 2009, with a further 23 percent expecting falls of
between 6 percent and 10 percent.
But it is not all doom and gloom. Even in these tough times there are bright spots. There are
geographic locations and technology markets that, if not offering huge growth potential over the
next year or two, will offer some growth and some places of refuge for vendors. And some
markets promise growth even in 2009. On a macro level, recent IMF economic forecasts are
predicting contraction for some of the world's biggest economies (the U.S., Russia, and Japan)
and trading blocks (the EU). But they also still predict growth in many emerging markets. And the
slower growth rates being predicted in those developing economies are still impressive in
comparison with recent performance of advanced economies.
In fact, our analysis suggests that the global market will not fall by much in 2009, and that there is
growth potential for 2010 and beyond. Vendors will undoubtedly feel the pinch in some regions,
and the capex trends do suggest growth for specific types of vendor – not all will benefit from
medium-term global growth. But the opportunities are there to be found.
This Light Reading Insider takes a look at the impact of the economic downturn on telecom
investment around the world, and offers forecasts for global capex between 2008 and 2013. It
investigates the likely trends in different geographical regions, and identifies national and
technological markets that are likely to see growth during 2009 and beyond.
Companies profiled in this report include: AT&T Inc. (NYSE: T); China Mobile Ltd. (NYSE: CHL);
Deutsche Telekom AG (NYSE: DT); France Telecom SA (NYSE: FTE); NTT DoCoMo Inc.
(NYSE: DCM); Sprint Nextel Corp. (NYSE: S); Telecom Italia S.p.A. (NYSE: TI); Telefónica SA
(NYSE: TEF); Verizon Communications Inc. (NYSE: VZ); Vodafone Group plc (NYSE: VOD).
It is important to note that the data shown represents a simple average of growth rates in
countries around the world, and only includes data from countries stable enough to have reported
anything meaningful. Because it is a simple average, the impact of recession in a major economy
such as Japan is leavened by the volume of other markets reporting data. So, it should not be
concluded that global gross domestic product (GDP) never falls; but it can be concluded that on
balance, and before taking into account inflation, there are generally more countries exhibiting
growth (even if that has slowed) than there are countries in recession. That is an important point
to note when considering prospects for the current global market.
The chart also implies that rates of telecom investment have, with the exception of the early
2000s, generally been growing faster than rates of GDP. This is borne out by Figure 2 below.
Economic prospects for many regions of the world are looking less than rosy, with some major
countries already officially in recession (e.g., U.S. and the U.K.) and many others slowing
dramatically. There is no consensus among analysts about how well global markets will perform
next year, but there is general consensus that it will not perform as well as it did in 2008. The IMF
has forecast that world output will grow by only 0.5 percent in real terms in 2009 (compared with
global growth of 5.2 percent in 2007).
One of the big questions this time is whether growth in investment in the telecom market might be
expected to fall faster than the economy at large. Some evidence suggests that in some countries
– but not all – it might. For instance, on the negative side, the Russian economy is expected to
contract by around 0.7 percent in real terms (i.e., adjusting for the impact of inflation) in 2009. In
comparison, several of the major operators have recently announced downward revisions to their
capex plans of as much as 20 percent in nominal terms. Russian inflation ran at above 13 percent
in 2008 and is expected to remain high in 2009, so the real impact of the reduction is actually
nearly 30 percent in purchasing power for those operators.
In the U.S., AT&T announced a 10 to 15 percent reduction in spending for 2009 in nominal terms.
Given the possibility of deflation over the course of 2009, the impact of this reduction on overall
spending power may be mitigated. Nonetheless, this still runs ahead of the 1.6 percent real
decline in U.S. GDP recently forecast by the IMF.
However, countering the trend of cuts running deeper than overall economic performance will be
some of the major Asian markets. China has just issued three national 3G licenses, and India is
about to issue 3G licenses. These awards are expected to drive telecom investment, keeping it in
line with economic growth. Indeed, this continues a pattern that has been evident for a number of
years. Telecom investment as a percentage of GDP has been growing in emerging markets, and
has actually been falling in advanced countries, as Figure 3 shows.
Given these variations, predicting the global outcome is less than intuitive. In fact, we forecast
that global expenditure on telecom infrastructure (fixed and wireless) will come in around $296.8
Figure 4: Forecast for Global Telecom Capex, 2008 to 2013 in U.S. Dollars
This is a smaller decline than predicted by many other industry analysts – we expect growth in
China, India (where we are assuming 3G licenses will be awarded this year), and other emerging
markets to sustain overall spending levels. Economic forecasters are currently predicting a return
to growth for the global economy from 2010 onwards. We have also assumed that telecom
investment in struggling economies will stabilize from 2010, with a slow growth path from there
through 2013. This forecast does not assume an extended recession, or worse, depression.
In January 2009, the European Commission stated that it aims to achieve 100 percent high-
speed Internet coverage for all EU citizens by 2010 as part of its European Economic Recovery
Plan. It has set aside $1.28 billion ($1.28 billion) for the project, which is intended to boost private
investment and national funding, with the aim of connecting more of the 30 percent of rural
Europeans with no access to high-speed Internet services. This spending will be amplified by
local initiatives. For instance, the French government has changed the rules so that local
authorities can use public funds to make minority investments in broadband networks. In addition,
all new buildings that benefit from an element of public funding must be pre-cabled with fiber.
In February 2009, U.S. President Obama signed an economic stimulus package that included a
plan for investing $7.2 billion to stimulate broadband deployment in rural areas – some money
distributed as grants through the National Telecommunications and Information Administration in
the Department of Commerce, and some distributed through the Department of Agriculture.
In Australia, the government is planning to invest nearly a third of the AU$10 billion needed to
deploy a new (fiber-based) network to 98 percent of the population over the coming five years.
The Indian rupee, for instance, lost 20 percent of its value against the dollar from February 2008
to February 2009. Fortunately for U.S. vendors, it fell further against the Chinese yuan renminbi,
losing 23.5 percent of its value. The euro lost 15 percent of its value against the dollar in the
same period, showing that the currency swings have not been restricted to emerging markets.
For the purposes of forecasting, we have assumed that the currencies will stay relatively stable at
their current exchange rates. If any currency suffers further major swings, this will impact the
global investment level as measured in U.S. dollars.
Where they are announcing plans to trim investments, the cuts are typically focused on home
markets, more mature international markets, or markets where they hold a weaker competitive
position. For instance, Deutsche Telekom has recently reduced mobile investment in the mature
Austrian and U.K. markets, but accelerated spending in Poland and Hungary.
The biggest global operators are stating their intentions to continue with strategic transformations.
They have not made any suggestion that they plan to cut back on big fiber or 3G deployments,
although there is evidence that some may take a little longer to complete new construction work
to spread out the costs.
AT&T: AT&T expects total capex for 2009 to fall by 10 to 15 percent versus 2008, implying total
spending of $16.7 to $17.7 billion, excluding interest. (2008's capex, excluding interest payments,
was $19.68 billion.) The company plans to continue to progress its broadband U-verse network
deployment in 2009; although there are signs it may slow new build a little to spread investment
over a longer period. The network reached 17 million homes at the end of 2008, and is targeted
to reach 30 million in 2011, a year later than originally planned.
AT&T's 2007 capex was $17.7 billion, with $13.69 billion going to fixed network infrastructure,
and $2.5 billion of that on U-verse – a sum expected to be about the same in 2008. Its mobile
capex reached $3.75 billion in 2007, with cash invested in 3G expansion and capacity upgrades.
The 2007 figures represented a big swing from 2006 when $7.04 billion was spent on the wireless
network and $8.15 billion was spent on the fixed network (pro forma figures including BellSouth).
China Mobile: China Mobile company had a 2008 capex budget of 127.2 billion yuan
($18.7 billion). First half actual figures were 65.5 billion yuan ($9.6 billion). The company was
focused on deploying soft switches and IP based infrastructure. It was also investing in post-
natural-disaster reconstruction.
Its expenditure (including land lease prepayments) amounted to 99.55 billion yuan in 2007 ($14.6
billion), up from 77.57 billion yuan ($11.4 billion) in 2006. At the end of 2007, the company
estimated that it would require approximately 355.2 billion yuan (approximately $52 billion) for
capex from 2008 through 2010 for the construction of GSM networks, support systems, and
transmission and structural facilities. No portion of this was allocated to 3G investment.
Deutsche Telekom: Group capex was $10.2 billion in 2007, of which non-domestic European
mobile operations accounted for $2.5 billion, U.S. mobile operations for $2.5 billion, and the
broadband fixed network for $3.6 billion.
Investment in the first nine months of 2008 reached $2.3 billion on European mobile operations
and $2.4 billion on the broadband/fixed network. Cash capex in the European mobile segment in
the first three quarters of 2008 was slightly down on the previous year, reflecting lower spending
in Austria and the United Kingdom, but higher capex in Poland and Hungary.
U.S. spending accelerated to $2.3 billion for the nine months on the back of the roll-out of T-
Mobile USA's UMTS/HSDPA network and increased 2G network investment. In the first nine
months of 2008, the operator increased the number of 3G base stations it operates in the country
from 8,000 to 14,700. The operator plans further network expansion in the U.S. in 2009.
Deutsche Telekom is expanding its NGN in Germany, providing ADSL2+ and VDSL deployment
in 50 towns and cities.
France Telecom: With total capex of $8.6 billion in 2006 and $8.9 billion in 2007, France
Telecom's capex-to-revenue ratio climbed from 13 percent to 13.2 percent. The group had a
target of 13 percent for 2008, and confirmed it was in line to achieve this when it announced its
third-quarter results for that year. It means to increase expenditure in growth markets, including a
ramp in fiber-to-the-home (FTTH) capex in France; broadband services development in its other
operating regions (mainly Africa); and spending on services platforms and HSUPA. The company
aims for lower spending on 3G/3G+ after a peak in 2008, and a decrease of maintenance capex
(on the PSTN, 2G networks, and through increased network sharing etc.). Mobile capex
amounted to $4.45 billion in 2007, compared with $4.46 billion in 2006.
In recent years, the operator's mobile capex as a percentage of revenues has been in decline.
Fixed expenditure as a percentage of revenues has grown in France, and it grew in Poland until
first half 2008; however, it has fallen in rest of the world markets.
NTT: The Japanese operator expects capex for the year ending March 2009 to be around ¥2.15
trillion ($24 billion), compared with ¥2.13 trillion ($23.8 billion) the prior year. Spending excluding
intangibles will be around ¥1.26 trillion ($14 billion). NTT is focusing on expanding its NGN and
optical access capability. NTT East and West capex for the year ending March 2009 is expected
to reach ¥990 billion ($11 billion). NTT DoCoMo's capex will be around ¥720 billion ($8 billion).
NTT plans to roll out super 3G based on LTE from 2010. It also plans to expand NGN fiber
coverage from Osaka and Tokyo in 2008 to 85 percent of its public switched telephone network
(PSTN) customer base by end 2010. It expects to complete most of its investment in new
infrastructure, and particularly fixed networks by March 2011. It then plans to focus on service
creation. It aims to reduce capex as a proportion of revenue from 20 percent in the year ending
March 2008 to 15 percent by March 2013.
Sprint Nextel: Capex for 2007 (excluding licenses and intangibles) was $6.32 billion, down from
$7.56 billion in 2006. The company spent $384 million on its WiMax infrastructure in 2007. Full-
year capex for 2008 is forecast at $3 to $3.3 billion – just under half of 2007 spending.
Including license costs, Sprint Nextel reported capex of $2.49 billion in the nine months to
September 2008, down 44 percent from $4.45 billion in the equivalent period of 2007. The decline
reflected lower spending in both wireless and wireline operations.
Excluding license-related fees, wireless capex reached $1.53 billion over the period, down 57
percent. Spending was down as a result of reduced capacity needs and the conclusion of several
investment projects. For instance, by the end of 2007 the company had incorporated evolution
data optimized (EV-DO) Rev A into 82 percent of its network.
Wireline capex amounted to $342 million in the first nine months, down 20 percent, which was
primarily invested to support IP-related growth. It has launched its WiMax service for high-speed
Internet in Baltimore in 2008. The WiMax investment accounted for 28 percent of capex ($134
million) in the third quarter of 2008. (The rest was money spent in this period on capex yet to be
paid from previous periods, of which $487 million – 80 percent – was related to wireless costs.)
Telecom Italia: Telecom Italia reported in late 2008 that it expected a full year group capex of
around $6.9 billion, down from $7 billion in 2007. This is targeted to fall to $6.1 billion in 2009.
The company aims for capex intensity of 13 to 13.5 percent of revenues in 2011. Italian capex is
expected to be $4.5 billion in 2008, falling to $4.2 billion in 2009, and a target of 13 to 13.5
percent of revenues for 2011. Brazilian capex is expected at around $1.9 billion for 2008, a 24
percent decline in local currency in 2009, and a target of 13.5 percent of revenues for 2011. In
Italy it is moving towards an all IP network.
In 2007, domestic capex accounted for around 74 percent of group investments, European
broadband accounted for 9 percent and Brazilian operations for 16 percent of spending. About
68 percent of the Italian capex went on the fixed network and 36 percent of that went on
broadband expansion and IPTV development. Of the 26 percent of Italian capex that was spent
Telefónica: Group capex was flat between 2006 and 2007 at $10.2 billion with $3 billion invested
in Spain in 2007 ($2.9 billion in 2006). $4.2 billion was spent in Latin America in 2007 versus $3.6
billion in 2006, and $2.7 billion was spent on Telefónica O2 Europe in 2007 versus $3.3 billion in
2006. At the end of 2007, it projected cumulative group capex for 2007 to 2010 of $42 billion.
Telefónica reported a group capex of $6.9 billion in the first nine months of 2008. Capex is
expected to be in the region of $11 billion for 2008, with 75 percent expected to be spent on
transformation and growth projects.
Spending at Telefónica España totaled $2.0 billion from January 2008 to September 2008, with
investment focused on expanding its broadband businesses (FTTH and 3G). In the first nine
months of 2008, fixed capex amounted to $1.32 billion and mobile capex was $0.63 billion.
In the first nine months of 2008, Telefónica Latin America spent $3 billion – focused on wireline
broadband, pay TV, enhancing the coverage and capacity of its mobile GSM networks, and the
rollout of 3G networks. Brazil received around 45 percent of the spending, Chile 12 percent,
Colombia 11 percent, Argentina 8 percent, Mexico 7 percent, Venezuela 6 percent, and Peru 5
percent, with the rest spread across smaller investments.
Verizon: Verizon reported capex of $17.2 billion for 2008. Wireless capex stood at 13.2 percent
of total wireless revenue and was flat versus 2007 at $6.5 billion. Wireline capex was down in
2008 to $9.8 billion versus $10.96 billion in 2007.
The company has not made any specific public announcements about its capex expectation for
2009 except that it expects them to fall below 2008 levels. It has said it does not plan to slow
expansion of its FiOS FTTH network. The company has also announced plans for aggressive
LTE network deployment from late in 2009/early 2010.
Vodafone: In its financial year that ended April 2007, Vodafone spent £3.63 billion ($5 billion) on
the purchase of property plant and equipment. This rose to £3.85 billion ($5.4 billion) in the year
that ended April 2008. Its capex, including intangibles, was £5.1 billion ($7.2 billion) in 2007/08.
The company's network strategy revolves around European network evolution to a single IMS
and all IP network. It plans to employ network sharing, rationalize IT applications, centralize
network testing, optimize its transmission infrastructure, simplify its field force, and streamline
network maintenance. For Europe, it is targeting a capital intensity at or below 10 percent with
other markets converging on European levels in the long-term.
Spending was divided roughly evenly (including intangibles) between Europe and the rest of the
world in the year ending April 2008, compared with a two thirds/one third split in favor of Europe
in 2007, and a three quarters/one quarter split in favor of Europe in 2006. Vodafone plans to cut
costs by £1 billion ($1.4 billion) by 2011.
The worst-performing regions will be Western Europe and North America, with cumulative growth
of 5 percent and 6.4 percent, respectively, between 2008 and 2013. Both of those regions, along
with Central and South America and Eastern Europe, are expected to contract in 2009.
In line with general economic expectations, we forecast that most national markets will return to
growth in 2010, with the result that all regions will show some growth again from 2010.
A. North America
North America is not expected to be all bad news in 2009. In Canada the operators seem set to
defy the downturn. Telus has announced a 12 percent increase in spending for 2009, taking its
total to more than C$2 billion. Its strategy includes investment in wireless and broadband wireless
services, its shared national next-gen wireless network build, and the development of new
wireless applications. The company will also be spending on infrastructure (presumably IP and
Ethernet investments) to enable it to support large enterprise contracts in Ontario and Quebec.
Canada is also home to a new wireless operator, as in July 2008 Egyptian group Orascom and
Canada's Globalive Communications won a new Canadian mobile license, paying C$442 million
for the concession. The partners will spend on network deployment to support their services.
While it will remain a very large market, the U.S. will not be a fast mover in 2009. The impact of
widespread redundancies will force families to cut costs – and some will inevitably move to
cheaper phone plans, etc. Operators are preparing for this: Sprint cut capex drastically in 2008;
AT&T plans a significant 10 to 15 percent reduction in 2009; Verizon expects 2009 spending to
come in below 2008 levels; and Qwest has announced that it plans to keep capex flat in 2009, but
that it has the capacity to cut spending without impacting services, if required.
AT&T and Verizon have suffered from rapidly declining PSTN businesses, so their investment will
remain firmly focused on growing mobile and next-gen networks. They were both big winners in
the FCC frequency auction in March 2008. Verizon C-Block frequency should enable it develop a
nationwide wireless broadband network, while AT&T's B-Block frequency should enable it to
improve capacity and services across its existing network.
B. Western Europe
Austria: Telekom Austria has confirmed that 2008 capex levels of $1.02 billion will be sustained
through 2010 (covering domestic spending and in the company's investments in Central and
Southeastern Europe).
France: In January 2009, the government said it would set aside frequency for a new mobile
entrant, which, although delayed, would lead to new investment. Iliad sought the country's fourth
3G license in 2008, and previously estimated $1.5 billion would be needed to provide 90 percent
population coverage in France. Separate frequency will be made available to any bidder.
In December 2008, Orange, Numericable, and SFR agreed to roll out fiber optic cable in France
and share infrastructure. In zones where they currently deploy or soon plan to deploy their
networks, the signatories will equip each residence with a single mode fiber allocated to the
operator chosen by the subscriber at the shared access point.
The operators also agreed to deploy "multi mode" fibers – a new technique that consists of
installing four fibers per residence – in Paris's 15th arrondissement and in a provincial town. Also
in December 2008, France Telecom reiterated its interest, in line with its 2012 plan, in deploying
fiber (GPON) on a widespread basis in France.
Meanwhile, Neuf Cegetel has committed to a three-year, $383 million FTTH build in the country.
Norway: In December 2007, Mobile Norway (a joint venture between Tele2 and Network
Norway) was awarded a 3G license. Its services are due for launch in 2010, and its network is
due to cover 40 percent of the population in six years.
Switzerland: In December 2008, Swisscom announced plans to spend 2.8 billion Swiss francs
($2.4 billion) on FTTH over six years, as part of an overall 8 billion franc ($6.9 billion) investment
in infrastructure and IT. Deployment is already underway in Basel, Geneva, and Zurich.
Swisscom aims to connect 100,000 homes by the end of 2009. As things stand, Swisscom will
not face competition on its fiber network. The Swiss parliament decided in 2007 not to regulate
access to Swisscom's fiber.
U.K.: The U.K. is unlikely to be a hotspot of investment in 2009. The financial market and retail
sector were hit very hard, resulting in many operators losing major customers as those customers
have gone into administration.
Rumors abounded in late 2008 that BT may cut capex to offset some of the cash flow problems at
its international arm BT Global Services. The group has so far denied this. BT has said it has
room to make cuts, but CEO Ian Livingstone has also said not to expect a huge capex change.
Instead the group will be focusing on opex reduction.
BT plans to invest £1.5 billion ($2.15 billion) in fiber-based, super-fast broadband – predominantly
based on fiber-to-the-cabinet (FTTC) – to as many as 10 million homes by 2012. Investment in
this initiative was expected to be around £100m ($143 million) in each of the 2008/9 and 2009/10
financial years ending March.
Hungary: In January 2009, it was confirmed that there were four bidders for a bundle of
frequencies that will enable a fourth GSM/UMTS player into the market. There were also multiple
bidders for frequency enabling broadband mobile.
In addition, by the end of 2013, Magyar Telekom aims to deploy a FTTH network reaching
780,000 households. It also plans to upgrade 380,000 households currently connected to a HFC
network with EuroDocsis 3.0.
This follows the launch of the country's third GSM license in September 2007. Telekom Austria's
subsidiary Vip won a GSM license, which the company launched having invested $50 million in
infrastructure, services, customer service, and distribution. More money will be spent on
expanding network capacity.
Russia: Russia has been the focus for sustained 3G and fiber investment, although the local
players warned of belt tightening in the run up to 2009.
MTS launched 3G services in St. Petersburg in May 2008. Its plan involves covering 60 cities by
the end of 2009 (from 20 in 2008) and over 80 cities by 2010 to reach 40 percent population
Additionally, various Russian operators have announced FTTH plans. In November 2008, TTK
(formerly known as Transtelecom) announced plans to enter the broadband market with a mix of
FTTH (point-to-point and GPON) and wireless broadband infrastructure (WiMax). It stated plans
to invest $1.5 billion by the end of 2015, most of it in the 2008 to 2011 period.
In October 2008, Vimpelcom announced plans for its own fiber network using aerial deployments.
It originally intended to establish a presence in 300 cities by 2011. Subsequently, the company
said it would reduce capex significantly in 2009; however, it pointed out that the reductions would
largely come from its 2G spending – its 2G networks are substantially complete. Nonetheless,
both 3G network and FTTH network deployments are expected to slow. The company is
expected to complete build in areas where work has started but will not start construction in new
areas. Vimpelcom's capex is expected at $2.5 billion in 2008, and below that for 2009.
In November 2008, Moscow fixed-line telecom operator OAO Comstar United TeleSystems
followed Vimpelcom's lead and said it would reduce 2009 capex to $360 million from the previous
target of $480 million.
Serbia: Serbia is expected to launch a tender for a second fixed network operator license in the
second quarter of 2009.
Uzbekistan: Russian company OAO Mobile TeleSystems (MTS) received WiMax and 3G
licenses in 2007 and launched a test 3G network late in October 2008. The company also plans
to roll out commercial services throughout capital Tashkent and introduce services to Samarkand,
Bukhara, and Andijan in 2009.
D. Middle East
There was a spate of licensing activity in the Middle East late in 2008, which seems set to
continue into 2009.
Bahrain: In January 2009, Saudi Telecom Co (STV) won Bahrain's third mobile license.
Penetration is already 125 percent, split between two existing players Telecommunications Co.
and Zain Bahrain, so STV is not expected to enjoy an easy growth trajectory. Nonetheless, the
launch of services will mean additional network deployment.
Egypt: The Egyptian government postponed the auction for a second fixed-line license by a year
in September 2008, citing international market conditions as the reason for the delay. The auction
is now expected in late 2009 (although the event has now already been postponed three times).
Iran: Etisalat and its joint venture partner Tameen Telecom – which is owned by pension fund
provider Iranian Social Security Organization – won Iran's third mobile license in January 2009.
They gained a two-year exclusive license to provide 3G services in addition to 2G services.
Jordan: A 3G license is due to be awarded in the first quarter of 2009. Ten months after that
award the incumbent mobile operators will be offered 10 MHz of 3G frequency at the same price
as the winning bid. The winner of the first 3G license will also be offered the capacity to buy 2G
frequency. The process means several new 3G networks will be deployed.
Oman: In October 2008, PCCW-Awaser Oman Consortium, a joint venture between the Hong
Kong-based telecom company Pacific Century CyberWorks (PCCW) and a local partner, was
named Oman's second fixed-line license enabling local and international fixed line services,
including frequency for wireless broadband and submarine cables. The government was
previously reported to be looking for a bidder able to invest $300 million over five years.
Qatar: A consortium of Vodafone and Qatar Foundation won the country's second fixed-line
license in September 2008, adding to the mobile license the partnership won to introduce
competition to the country in late 2007.
E. Asia/Pacific
China: The big one! Early in January 2009 the Chinese government finally awarded three 3G
licenses. One is for a service based on Time Division-Synchronous CDMA (TD-SCDMA) (which
went to China Mobile), one based on WCDMA (China Unicom), and one based on CDMA2000
(China Telecom).
China Mobile aims to cover all China's major cities by 2011. China Telecom plans 3G services in
all cities within three months and all counties within six months. The Ministry of Industry and
Information Technology has predicted that 400 billion yuan ($58.8 billion) will be spent on 3G
network rollout during 2009 to 2011, 170 billion yuan ($25 billion) of that is expected in 2009.
China Unicom plans to spend 100 billion yuan ($14.7 billion) in 2009 and 2010. China Telecom
plans to spend 80 billion yuan ($11.8 billion) over three years.
Hong Kong: In January 2009, the Hong Kong regulator announced the award of three
broadband wireless licenses to China Mobile (Hong Kong), PCCW, and CSL New World Mobility.
India: After a few false starts, the licensing process for 3G licenses is due to be announced early
in 2009. However, there have been reports that the government may delay the auction again due
to concerns that overseas carriers may not be able to participate in the current economic
environment. The government is also considering expanding the number of licenses: Up to eight
players could get spectrum in each of India's 22 regional telecom "circles."
State-owned BSNL has, in fact, been guaranteed frequency as part of the process and is
reported to be rolling out 3G infrastructure anyway. The operator has announced plans to spend
as much as 400 billion rupees ($8.16 billion) over three years on deploying and expanding its
GSM and wideband CDMA (WCDMA) networks; although, in November 2008, the company also
said it might cut that figure if demand slows, or if currency fluctuations adversely affect the value
of the rupee against the dollar.
In January 2009, Reliance (India's second largest mobile operator) said that it passed the point of
peak capex in its existing networks. Capex for the year ending March 2009 is now not expected
to exceed INR250 billion ($5.1 billion), a reduction of 16 percent against original forecasts.
Spending will fall further in the year ending March 2010 to INR150 billion ($3 billion).
Another Indian operator planning to cut investment is Tata Communications, which provides
fixed voice and data services. It has reduced its investment plan for 2009 from $1.3 billion to
$897 million.
While others are cutting spending, Bharti Airtel has reportedly set aside $5 billion for investment
in 2009. Around $2.5 billion is expected to be spent on the wireless access network and $2.5 to
$3 billion on the passive infrastructure (by which we assume the company means towers, etc).
Japan: The LTE race is heating up in Japan. NTT has plans to deploy from 2011. Meanwhile,
KDDI has awarded a contract to a partnership led by Hitachi to supply LTE. In the meantime,
however, capex from the major operators is under pressure. NTT aims to reduce capex as a
percentage of revenues by 5 percentage points over five years (a 25 percent reduction). KDDI
expects to reduce capex by 15 percent in its year ending March 2009.
Philippines: In November 2008, PLDT reduced its capex forecast for 2008 by PHP1.5 billion,
having postponed some wireless broadband investments. It will review its spending plan early in
2009 once the economic situation becomes clearer.
Meanwhile Globe Telecom, the second-biggest telecom firm, has said it will cut its spending in
2009 by up to 16 percent to $350 to $400 million. (Capex was $420 million in 2008.)
South Korea: Reports suggest major capex cuts can be expected in Korea in 2009, with 3G build
nearing completion, and plans for 4G not likely to reach the stage of actual deployment until after
2011. SK Telecom is expected to possibly cut capex to 12 percent, down from 17 percent of
revenue in 2008. Its capex for 2008 is expected at around $1.4 billion. Meanwhile, the second
mobile operator KTF is expected to cut spending by 10 percent to $612 million. LG Telecom's
mobile capex is also forecast to fall by nearly 30 percent to around $360 million.
Thailand: 3G licenses are expected to be issued during 2009. The process is due to be
announced in February 2009.
Brazil: Brazilian fixed-line operator Telesp reported in January 2009 that it plans to increase
investments by 20 percent to BRL2.4 billion ($1.03 billion) in 2009.
Caribbean: Cable & Wireless, which owns a number of telecom interests in the region, expects
to maintain its investment ratio in emerging markets at around 20 percent of revenue, eventually
reducing this to match the 10 to 12 percent of its European operations as markets mature.
Chile: An auction for a 3G license will take place in April 2009. Limits on the amount of frequency
any single operator can hold mean that the three existing operators probably will not be bidders.
Ecuador: Telefónica was expected to sign an extension of its license in Ecuador in November
2008. The company, the number-two provider in the country, plans to invest $400 million in the
coming years to improve its network and deliver 3G services.
Mexico: Auctions for wireless spectrum are expected by the end of this year to enable fixed
wireless and mobile telecom services including WiMax and 3G. Mexico hopes to attract at least
one new carrier to the market. One bidder, Iusacell, has said it would invest $400 million should it
win a license.
Meanwhile, some fixed-line operators are cutting back. Axtel, the number-two fixed-line operator,
has forecast spending of $180 to $190 million in 2009, compared with $330 million in 2008.
Maxcom, the number-three carrier, has forecast spending of $65 to $70 million, down nearly 50
percent on its 2008 figures.
G. Africa
Libya: In February 2009 Libya launched a tender for a single competitive mobile license and a
single competitive fixed license to go to a single company.
Rwanda: In November 2008, Millicom International Cellular won a license to offer nationwide
mobile services, becoming the third operator.
But that is not to say that the fixed network will be neglected. IPTV services have been growing
steadily. For instance, AT&T signed up a just over quarter of a million U-Verse customers in the
fourth quarter of 2008 to exceed 1 million subscribers. Verizon won over 300,000 new customers
to reach 1.9 million subscribers. IPTV growth will drive new spending.
At the same time, DSL deployment has passed its peak in many advanced markets, broadband
investment has far from ended. ADSL upgrades are being deployed, and there are still plenty of
operators looking at the deployment of FTTH or FTTC with VDSL2 to support next-gen access
services. Outside of Asia/Pacific, GPON is expected to be the primary FTTH technology.
Infrastructures designed to support next-gen service provision are expected to be a focus for
investment with operators generally reporting increased IT spending. This includes investment in
application and service delivery platforms (including for IPTV), applications, and content delivery
infrastructure (a newly hot area for many large carriers). Deep packet inspection (DPI) technology
is expected to continue to sell (as it helps manage opex for one thing, and promises revenue
potential, too).
Legacy data networks are in decline, with all major carriers reporting a swing in demand towards
IP, IP virtual private network (VPN), and Ethernet-based services. For instance, Sprint reported
that legacy data revenues declined 22 percent in the year to September 2008, and 8 percent in
the quarter ended September 2008. Investment in next-gen technologies will continue at the
expense of ATM, Frame Relay, and legacy leased lines.
Use of VoIP is growing worldwide, and will continue to do so. Many VoIP service providers have
reported an uptick in customers as end users have looked to cut telecom costs. This trend, along
with increasing evidence that large telecom users want to migrate to IP-based solutions without
throwing out all their existing enterprise networking kit, means that softswitch technologies and
media gateways will be in demand to enable migration paths to all IP core.
Core network migrations, long-planned by the major incumbents, will continue largely unaffected.
The markets for core switches and routers are expected to be flat. Ethernet access will continue
to be deployed – often in response to customer demand. Operators are unlikely to roll out far in
advance of customer requirement.
Ominously, sales of advanced handsets have been a growth driver for mobile operators in 2008.
For instance, AT&T added 1.9 million iPhone accounts in the fourth quarter of 2008, bringing in
many new accounts. In an extended economic downturn, purchases of expensive accounts and
expensive handsets (unless heavily subsidized) may slow. Apple has already reported a
downturn in global shipments for late 2008. Operators have been generating much higher
average revenue per user (ARPU) returns from users with advanced handsets, so they will have
to balance degrees of subsidization to ensure they do not cut off their supply of new high
spenders, but do not over inflate opex with hefty subsidization policies.
Mobile broadband has remained a strong and emerging growth market. We can expect to see
increasing demand for backhaul capacity. For mobile operators this may mean more opex
(although moving to Ethernet may be able to reduce the impact here), but the wholesale
providers will have to ensure their networks can take the strain with operators reporting mobile
data volumes doubling by the quarter in some countries during 2008. They will have to deploy the
appropriate infrastructure to support that growth.
On a global level, mobile is expected to account for around 55 percent of capex in 2008, rising to
nearly 60 percent in 2013. A small downtick in the percentage in 2011 and 2012 comes as a
result of increased fiber investment assumed for leading operators in Europe.
The fact that much of the growth is coming from China is not great news for Western vendors –
local vendors can be expected to win the lion's share of the spending. They may also do well in
India, where the operators are likely to be very cost-conscious. Although the rupee fell further
against the yuan than it did against the dollar in 2008, the Chinese vendors' aggressive pricing
strategies will stand them in good stead.
Mobile spending will drive global growth in 2010, but fixed network spending should not be written
off. Strong revenue streams will be available in the coming years as a result of increasing fiber
deployment. In addition, government spending to stimulate the market – for instance by driving
broadband further into rural areas – is expected to having a meaningful impact once it starts to
flow through the system. A large proportion of the fixed network spending will go on laying cables
and digging, so civil and engineering companies stand to win a good share of the capex.
Incumbents' network transformation and strategic network projects are not at risk in developed
markets – operators see these projects as their primary means of sustaining market share and
revenues in the future. The completion dates may be pushed back a year or so though (lowering
the average annual spending). Service, application, and content delivery platforms, and
supporting technologies such as DPI, are expected to see sustained spending.
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