Operator revenues passed the $1.9 trillion mark in 2011, up 7% from $1.8 trillion in 2010. The growth stems from a recovery in both fixed and mobile, whose sales grew 3% and 10% respectively.
Strongest growth came in the BRIC countries (up 14%), while the weakest result was in Europe ex-Russia (up 3%). Economic jitters caused budget cuts late in the year, hitting operator capex. Overall for 2011, capex grew 9% to $306 billion, due to double-digit percentage growth in the first three quarters; 4Q11 capex was down 1% YoY. Totals for the year were within our forecast range but slightly below the most likely case.
Among the top 10 capex spenders were two from North America (AT&T, Verizon), China’s three big carriers, NTT, and four European operators with multinational operations (DT, Telefonica, Vodafone, and FT). The largest 20 operators, as ranked by 2011 capex, accounted for just under 60% of both revenues and capex.
Ovum’s revenue and capex forecast is on track
Ovum’s December 2011 forecast of operator revenues and capex called for global revenues of $1.96 trillion and capex of $314bn in 2011. Actual results for 2011 were 2–3% below expectations, well within our forecast range. The fourth quarter was plagued with severe worries about debt in Europe that caused some large carriers – in multiple regions, not just Europe – to slow 4Q11 capex spending. Weaker economic growth also hit revenues, mobile slightly more than fixed. We expected fixed to account for 40% of revenues; it actually hit 41% of the total due to stronger-than-expected fixed broadband revenue growth.
Looking ahead, some macroeconomic challenges have eased in 2012, such as US unemployment and Greece’s debt crisis. Equity markets are picking up – the NASDAQ index for instance has risen nearly 20% since January 1, hitting a five-year high. These and other signs of a slowly improving economy are consistent with assumptions in our 2011 forecast. Further improvement should help meet our 2012 revenue and capex growth targets of 3% and 6%, respectively, although plenty of downside risk remains.
By region, the only sizable 2011 surprise came in Middle East & Africa, where actual revenues and capex were 10% and 7% lower than expected. This region continued to suffer from political volatility at year-end, which affected some carriers’ expansion plans. Note that Chinese vendors are disproportionately strong in MEA, so the capex weakness there affects them more than some rivals. Fortunately for them, China ended 2011 strong with $45.4 billion in capex, in line with the $45.7 billion we anticipated. North America, meanwhile, posted revenues a comforting 2% above forecast, but weak 4Q spending by Verizon and Sprint limited 2011 capex to 4% below forecast.
Global capital intensity met our expectation
Often ratios are more useful to review than absolute dollar figures. One key ratio is capital intensity (capex divided by revenues). Actual capital intensity was 16.0% in 2011, in line with our forecast.
As expected, the data show lots of variation in capital intensity at the regional level. Emerging-market carriers continue to build networks ahead of the revenue curve. BRIC overall had a capital intensity of 22.2% in 2011, driven by China’s high of 26.1%. India faced an investment drought for the second straight year in 2011, as it remains plagued by canceled licenses, political scandals, and ongoing regulatory uncertainty. Its capital intensity was 18.3% in 2010 and just a bit higher (19.3%) in 2011.
Brazil, also part of BRIC, has averaged a capital intensity of just 14.6% for 2008–11, one of many reasons we are bullish on near-term capex prospects there. Russia’s capital intensity was 21.5% in 2011, flat with 2010. Russia’s prospects are also good near term, as we expect roughly $75 billion in total capex over the 2012–17 period. Russian carriers are also investing internationally in both Europe and Asia, so their spending is significant beyond their borders.
At the other extreme from the relatively free-spending BRIC countries is the Europe ex-Russia segment. Capital intensity increased there in 2011, but to just 13.4%; the previous three years were all below 13%. Macroeconomic issues remain the key investment constraint in Europe. Some European operators, though, for example Telefonica and Vodafone, do spend capex much more aggressively in their out-of-region operations. Telefonica Latin America, for instance, had a capital intensity of 18% in 2011, far higher than the 11% ratio of Telefonica’s European operations for the year.
Globally, a capital intensity metric below 16% is more sustainable. We forecast capital intensity to edge towards 15% over the next five years.
Capex is not the only thing to watch
Service providers are also trying to control operational expenses (opex), not just capex. Operators have increased their outsourcing rates of operational functions over the past few years, leading savvy vendors to develop more mature professional services offerings to take advantage of this new opportunity. This is now a huge market: vendors’ revenues from ICT services provided to operators reached $70 billion in 2011 (see ICT Services Market Share: 4Q11, March 2012). Ovum is considering how best to serve our customers through an increase in our opex coverage and we welcome client feedback.
For more information visit www.ovum.com/