The telecommunications industry isn’t what it was -- nor what it will be. Nothing makes the transition buffeting the industry more clear than a look at capex predictions and related stories.https://o1.qnsr.com/log/p.gif?;n=203;c=204663295;s=11915;x=7936;f=201904081034270;u=j;z=TIMESTAMP;a=20410779;e=iMultichannel news reported on a forecast issued last week by Raymond James’ analyst Simon Leopold on capital expenditures (capex) for the telecommunications industry. The forecast predicts that overall capex will rise 3 percent in the United States. Cable will advance only 1 percent, with wired and wireless (telco) up 2 percent and Web expenditures 6 percent.
The international numbers are more bearish: European capex will recede by 7 percent and China will sink a full 11 percent. That China and Europe are down while the U.S. is up is one sign that things are changing.
More evidence of change can be found in Ovum's forecast for worldwide capex. The first point analyst Matt Walker made was that the traditional segment – what generally is thought of as “telcos” – likely finished 2015 with $1.78 trillion in revenues. That’s 5 percent less than last year. The previous three years – 2012 to 2014 – were flat.
The major point of the analysis, though, is that the old definitions need to be rethought:
Capital spending by telcos remains tightly constrained: from $339bn in 2014, CSP capex will decline in 2015–17 before growing again through 2020, spurred on by early 5G spending. Meanwhile, capex from the Googles and Facebooks of the world – Internet content providers (ICPs) in Ovum lingo – is growing steadily in aggregate, reaching $110bn by 2020. That’s not much less than all fixed telcos will spend on their networks in 2020.
The key going forward for vendors is to make investments – both in research and development and acquisition – that play to the needs of ICT companies.
Zacks, which provides more granular investor-ready input, posted a piece last week that looks at the telecom industry in the United States. It doesn’t offer predictions, but does provide good insight into the way the firm sees things developing.
The company points to five drivers of innovation: wireless networks, high-speed fiber networks, industry consolidation, innovative products, and healthy demand in rural areas.
After a discussion of two strategies – diversification and geographic expansion – the firm offers what could be called a ringing endorsement of the overall category. The industry is immune from external disturbances, has high barriers to entry (thus discouraging new competitors) and strong demand. Those, the piece concludes, are “positives that are difficult to disregard from the standpoint of investors.”
Numbers are a good indicator of where a sector is going. In this case, however, even more compelling conclusions can be drawn from the tone and theme of the reports. Clearly, the very nature of what types of businesses and technologies should be followed is in a state of transition.
Carl Weinschenk covers telecom for IT Business Edge. He writes about wireless technology, disaster recovery/business continuity, cellular services, the Internet of Things, machine-to-machine communications and other emerging technologies and platforms. He also covers net neutrality and related regulatory issues. Weinschenk has written about the phone companies, cable operators and related companies for decades and is senior editor of Broadband Technology Report. He can be reached at firstname.lastname@example.org and via twitter at @DailyMusicBrk.