The conclusion of a report by Analysys Mason’s Rupert Wood on the decline in operator network capex reads more like the ideological doctrine of China President Xi Jinping than a telecoms position paper.
The research director argues a decline in network capex by operators globally could be an opportunity to shift investment away from “the old productive forces” that deliver bandwidth at ever-lower cost and instead “harness new and higher-quality productive forces” that exist outside those traditional perimeters.
Wood suggested operators invest in adjacent network infrastructure businesses, such as green power distribution, electric vehicle grids or, as Chinese and Japanese operators are doing, in a broader set of digital infrastructure assets.
Xi often refers to the popular policy concept of “new quality productive forces” to boost growth with a focus on technological advancement and self-reliance.
Down in 2023
Capex for the largest 50 operators in the world declined 3.5 per cent in 2023, after a 7.8 per cent rise in 2022, Analysys Mason data showed. North America registered the biggest decline, with the spending of the three major players falling 18 per cent. Capex in Europe dropped 5.5 per cent.
The top 50 mobile players account for about 78 per cent of telecoms capex worldwide.
The outlay in China was steady last year as operators shifted investment to enterprise capabilities. In Japan and South Korea capex also was mostly flat, with operators investing in adjacent lines of business.
Of 42 operators providing a capex guidance for 2024, 28 forecast a fall; most of the emerging market focused players indicated a decline. Just six plan to boost spending, while eight aim to keep it steady. Longer-term capex projections point to steepening declines.
Analysys Mason’s forecasts indicate capital intensity (capex as a percentage of revenue) will fall from around 20 per cent to 12 per cent to 14 per cent by the end of the decade. This is driven by subscribers not requiring more than the 1Gb/s fibre and unlimited 5G that the current networks are easily capable of delivering, and growth in measurable demand slows every year.
Wood expects only limited uplift for standalone (SA) 5G and 5G-Advanced, as some operators will not be able to justify a further upgrade after a move to non-standalone (NSA) 5G. This is due to both slack demand and the required investment will be lower for the rollout of NSA 5G.
APAC trends
Neale Anderson, head of APAC telecoms research at HSBC, told Mobile World Live the situation across Asia is complicated, highlighting some key trends.
He expects higher investment in new business in China, noting that until recently the area was fast growing and made a lot of sense. “However, visibility is tougher now, and investors are required to wait through a period of high capex but less demonstrable return.”
In Japan the best outcome will be a balance between investment for growth and shareholder returns: KDDI has done a good job balancing this, while NTT has skewed more towards investment for growth, he stated.
In Taiwan and Hong Kong, operators are expected to allocate more funds from declining capex to shareholder returns, reflecting the priorities of shareholders.
Anderson noted initiatives by operators to add value to existing offerings in South Korea may result in a better mix there, but historically management has preferred to invest for growth. SK Telecom’s heavy focus on AI is a good example.
Vendor impact
While there may be benefits as operators shift their priorities to maximise the efficient use of assets and explore opportunities using new business models, equipment vendors mostly share the pain.
A couple of Dell’Oro Group reports highlighted the impact due to a slowdown in 5G deployments: in Q2 both the mobile core network market and microwave transmission equipment revenue declined 8 per cent year-on-year.
The longer-term outlook is equally dim. The research company last month revised a forecast predicting RAN revenue to decline at a 2 per cent CAGR over the next five years.
With capex-to-revenue ratios dropping, Matthew Iji, director of data modelling and forecasting at GSMA Intelligence, argued the industry is essentially in the same position with 5G as it was with 4G in 2016. “Capex-to-revenue ratios of around 16 per cent are exactly what you’d expect at this stage of the cycle.”
He doesn’t foresee a return to earlier investment levels until the arrival of 6G. “While there will be ongoing investments in SA 5G and 5G-Advanced, it doesn’t seem like operators are in a hurry to provide nationwide 5G services.”
Iji suggested increased take up of SA and 5G-Advanced or an early launch of 6G could change the investment outlook, noting “new generations drive investment as operators look to outdo their competitors”. He said 6G is not included in its capex forecast as it doesn’t expect the technology to arrive until towards the end of the decade but it will be a major driver.
It appears equipment vendors will have to wait for 6G to spur new productive forces to drive fresh momentum in the RAN market.
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