Posts Tagged ‘capex’

Growing Margin Pressure for Tier One Service Providers

Monday, April 8th, 2013
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It is easy to predict that mobile service providers will be looking for ways to cut their capital investment and operating expense requirements over the coming decade. Desire to maintain profit margins will be the key driver.

Globally, service provider revenue will likely be close to flat over the next several years, with revenue growth in emerging markets offset by flat to falling revenue in some developed markets.

Vodafone’s gross profit margin is 32 percent, but has been decreasing every year since 2006. Revenue growth has also slowed. Since 2007 (the company made a loss in 2006) revenue growth has averaged eight percent a year. However, revenue growth has been just 1.1 percent in 2012 and 3.2 percent in 2011.

France Telecom has issues as well. France Telecom earned half of its 2012 sales within France. And it is an issue because of new competition from Iliad’s Free Mobile, which has succeeded in disrupting the telecom industry in France, primarily by causing a price war that has lead to lower profits for the existing companies.

But competition from cable operators is a growing issue as well, in part because cable operators are leveraging their triple play offers by adding mobile services to create quadruple plays that are hard for a mobile-only provider to match.

Since January 2012, when Free Mobile launched, average revenue per mobile user has fallen 10 percent and Free Mobile has gotten 6.4 percent market share.

Lower profit margins also are seen as a global problem. In fact, many leading tier-one service providers might not even be earning back their cost of capital.

Wireline networks have the weakest returns on invested capital with a 1.5 percent gain over the last decade, argues Bernstein Capital analyst Craig Moffett.

Wireless networks had a meager return of 0.3 percent. Cable garnered a 2.5 percent return.

Satellite networks had the best return on invested capital at 5.5 percent. Others, including AT&T, Comcast, Dish,Sprint and Verizon, have negative returns, Moffett argues.

The point is that it is growing more difficult for a major telecom services supplier to earn a profit, given current cost structures, competitive markets and changing end user behaviors. That means growing pressure to cut costs.

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Will 100-Gbps Drive 2013 Optical Capex Boom?

Thursday, February 21st, 2013
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“After ending 2012 on a flat note, things are looking up for the optical market in 2013,” says Andrew Schmitt, Infonetics Research principal analyst for optical at Infonetics Research. “Our conversations with equipment providers continue to trend positive, particularly in North America where 100 Gbps spending is about to ramp. The general consensus remains that an optical cycle for equipment in the core is emerging, what we call the ‘optical reboot.’”

“Meanwhile, there are positive rumbles in the EMEA region, where 2012 ended with a spending flourish and carriers are cutting dividends to plow capital into general capex,” Schmitt says.

The preliminary indication for China is that 2013 also will be a huge year for 100G as well. China is about half of the global 40 Gbps wave division multiplexing equipment market, and 2013 will be the peak year for 40G worldwide, Schmitt says.

The global optical network hardware market grew two percent in the fourth quarter of 2012, quater over quarter, but was down 13 percent year over year.

For the full year 2012, total optical equipment spending was down 10 percent worldwide

The SONET/SDH optical segment fared much worse, falling 30 percent in 2012.

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Mobile Operators Shift Capital Investment to LTE

Monday, August 20th, 2012
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Globally, mobile service providers are shifting capital investment from 2G and 3G networks to 4G, says Dell’Oro Group. Investment in Long Term Evolution radio access network gear more than tripled in the second quarer of 2012, compared to the second quarter of 2011.

Also, more than 85 commercial LTE networks were operating or under construction at the end of the second quarter of 2012, a 400 percent increase over the second quarter of 2011.

There were 28 million LTE subscriptions in service at the end of the second quarter of 2012, up 70 percent over the first quarter of 2012.

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