No signs of a capex slowdown
The rise of the connected smartphone and tablet has forever changed the way consumers and businesses consume data, which almost assures strong growth in network investment over at least the next five years.
Alcatel-Lucent president of Asia Pacific Rajeev Singh-Molares said continuing innovations in applications and uses of the network, coupled with low broadband penetration in many markets, the need to continue to upgrade and the move toward smart cities are all contributing to steady telco spend on capex.
"We crossed the chasm sometime in the last three years in terms what we do with connected devices. That change is irreversible and it's only going to continue and accelerate the data explosion," he told Telecoms Europe.net.
While there is growing anxiety over the possibility of a double-dip recession in the US stopping people from investing, "what I know with some conviction is that the drivers of the industry's growth - the consumers and enterprises - are not slowing down what they do with devices. Therefore, the traffic they generate will only continue to increase," Singh-Molares said.
He sees no slowdown over the next five or more years in the aggregate sense. In any specific market, after a big build, there could be a slowdown, he noted.
That sentiment is supported by recent results and projections. Steven Hartley, principal analyst at Ovum's telco strategy practice, said at a conference in Hong Kong earlier this month that the five-year outlook for the industry is stable, unlike over the past few years. He says Asia will be the growth driver, accounting for 53% of telecom revenue by 2016, after a CAGR of 6.4% over the next five years.
According to a recent Ovum report, network infrastructure revenues grew 7% in the first quarter and 10% for the first half. The mobile infrastructure market increased at its fastest pace since 2004.
Wireless Intelligence estimates that mobile operators in developing markets will need to boost capex as demand for high-speed wireless services expands. The research firm forecasts mobile capex spending to jump to 23% of total revenue in developing markets this year. Global mobile capex had accounted for 21% of total revenue in 2008 but fell to 19% last year.
Dell'Oro also expects 2H11 to be a strong period for the sector. It estimates total vendor revenues grew 25% year-on-year in the second quarter.
Singh-Molares said it would take a “severe recession” to cause investments to stop over the next 12 to 18 months, but added that such a recession is unlikely.
He argues that the infrastructure that supports the surging end-user demand will continue to have to be built. Some may say the next-generation access is built up in certain countries, but he noted that the core networks will continue to have to be upgraded. And by the time those upgrades are done, operators will face even higher capacity requirements in both the fixed and wireless access networks.
"So I see no fundamental reason in the next five years why, on a global basis, our industry will be anything but a growth industry."
Despite the global financial crisis and continued slow growth in the US since 2008, he noted that the number of users continues to grow and investments are still being made in 3G and, now, 4G. He pointed to the dynamism in the sector, with continued growth in start-ups, soaring valuations and talk of bubbles. "All this is happening since the worst financial crisis since the Great Depression [in the US]."
While growth will vary from market to market and category to category, Singh-Molares expects a disproportional share of the company's future growth to come from the Asian market.
The company's Q2 results came in better than most analysts expected, reversing a loss a year ago to post a profit of €43 million. Worldwide sales were up 2.4%; in Asia they were up 17% year-on-year and 45% from Q1 (constant currency).