Despite the ongoing global COVID-19 pandemic, Dell’Oro Group forecasts strong growth in global wireless capital spending this year, attributed to increased investments in the Asia Pacific region and 5G rollouts in China.
In its updated 2020 Telecom Capex Report, Dell’Oro analyzed relationships between wireless and wireline capex and revenue for more than 50 carriers, representing about 80% of worldwide capex and revenue.
“Even as we are issuing this forecast in the middle of a pandemic, we have not made any material downward revisions, partly because we believe this recession is a bit different than previous recessions,” wrote Dell’Oro’s Stefan Pongratz in a Thursday post outlining key takeaways from the report. “While there are clearly some downside risks over the short-term, we also believe there could be some long-term positives.”
In 2019, currency adjusted wireless capex increased 4% year over year, boosted by investments in wireless technologies as operators shift from 4G to 5G. However, combined wireline and wireless capital spending in both North America and Europe declined last year at a low-single digit rate, according to the firm.
Global telecom capex growth is projected to grow at a CAGR of 1% for the 2019-2022 period, while the firm continues "to forecast robust wireless capex growth for 2020.”
In China specifically, Dell’Oro anticipates wireless capital spending will increase 15-20% this year, with 5G driving more than 80% of mobile network related expenditures in China. This is based on forecasts that China’s major operators will continue to rapidly roll out 5G with the combined 5G BTS macro installed base surpassing 500,000 by 2020.
In the U.S., meanwhile, AT&T is planning to spend less on capital investments in 2020 than in 2019. Last year, AT&T’s gross capital investment was $23.7 billion, while it’s projecting 2020 capex in the $20 billion range (though these figures don’t separate wireline and wireless expenditures).
“Even with AT&T’s expected capex pull-back in 2020, we project capex levels in the U.S. to remain stable over the forecast period—total U.S. capex (excluding T-Mobile/Sprint integration capex) is projected to remain elevated over the forecast period,” Pongratz wrote.
The firm expects U.S. investments in mid-band will stay elevated, while millimeter spending will increase and low-band related capex will stay flat or see a decline.
Verizon in mid-March increased its capex for 2020 by $500 million to accelerate its transition to 5G and prepare for any potential network impacts from coronavirus. Verizon now expects full-year capital spending of between $17.5 billion and $18.5 billion, up from the previous range of $17 billion-$18 billion.
In its updated forecast Dell’Oro said that risks are broadly balanced globally, with a healthy ongoing shift from 4G to 5G, and an increased awareness that broadband is a critical utility. That’s been emphasized as the world continues to battle the coronavirus outbreak, with large populations under varying restrictions on movement. That includes stay at home orders across most of the U.S., where many are now learning, working, and staying inside, alongside temporary business closures in an effort to slow the virus spread.
Still, the firm acknowledged it’s too early to fully know the human and economic impact from COVID-19, but expects there could be some limited short-term capex downside as a result.
Short-term challenges include impacts to the supply chain and practical issues with companies unable to work on networks upgrades or deploy new equipment while some countries may be more or less shut down for few months.
Looking further out, Dell’Oro thinks COVID-19 may positively impact telecom capital spending.
“We are not downplaying the tragedy that the coronavirus represents with immeasurable human losses and massive economic losses,” wrote Pongratz. “But we do believe COVID-19 has and will continue to expose the digital divide accelerating the need for businesses and governments to review their broadband plans to not only prepare for the next pandemic, but also to accelerate their digital transformation plans.”