Communications industry capex is shifting rapidly to favor Internet content providers (ICPs) such as Google, Apple, and Facebook as traditional telcos tighten their capex budgets in the face of weak revenues, according to global analyst firm Ovum.
According to a new forecast* from Ovum, ICP capex grew from US$23bn in 2008 to US$46bn in 2013, and it will grow well over the US$100bn mark by 2019. ICPs are starting to spend heavily on their networks, particularly on data centers and cloud infrastructure. Telcos, aka communications service providers (CSPs), are likely to keep capex largely flat over the next several years, from the (approximate) 2014 level of US$340bn. That’s partly because revenue growth for the CSPs is hovering at around 2% per year, limiting their network investment options.
Ovum principal analyst and report author Matt Walker notes that ICPs are recording much stronger revenue growth, and some – notably Google – spend more of their revenues on capex than typical large CSPs.
“Ubiquitous broadband and user-friendly fixed and mobile access devices have changed the telecom industry dramatically. Enormous new value is being created by the new business models, apps, and service platforms now available to end users, many enabled by ICPs.” However, Walker notes, this transition is not easy for many industry players, especially large CSPs, forcing them to tightly control network spending. To compete with the adjacent market ICPs, they need to explore partnerships, leverage start-ups and ecosystems for innovation, consider a broader range of suppliers, and look realistically at what M&A could accomplish to improve their strategic positioning.
Even as ICP capex spikes, CSPs will dominate network infrastructure markets for many years to come. By 2019, fixed and mobile CSPs will still account for 29% and 44%, respectively, of total communications provider capex, while ICPs will likely reach 24% of total capex. Carrier-neutral providers (CNPs), mainly tower and data center specialist providers such as Crown Castle and Equinix, will chip in another 3%. While small spenders, CNPs are playing a crucial role in the overall functioning of the world’s networks, Walker said. CSPs are raising cash by spinning off tower assets to cell tower CNPs, for instance, and relying more on these specialists for incremental tower coverage. Data center–focused CNPs are also carving out a strong niche, providing multitenant data center space to CSPs, ICPs, and enterprises.
Figure 1 compares these four provider types’ capex shares for the past six years (2008–13) and for the 2014–19 forecast period.
Figure 1: Communications provider capex by company type, 2008–13 v. 2014–19 (US$ trillion)