Ovum Says Communications Industry Capex Favours ICPs

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.

Matt Walker, Ovum principal analyst and report author, noted 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 noted, 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.

Like companies in other network industries, CSPs have to spend heavily on their networks for both growth and basic maintenance.

Upgrading networks with new technology to support a lower cost base, new features, or better performance will continue to be part of CSPs’ annual planning.

A tight revenue climate puts a ceiling on capex growth, but capex levels will remain high. Walker concluded, “CSPs that fail to maintain their networks, upgrade to meet the competition, and deploy new services will simply fail in the marketplace.”

The report analyzes Ovum’s capex forecast for communications service providers (CSPs), Internet content providers (ICPs), and carrier-neutral providers (CNPs).

Total spending was US$2.1 trillion over the 2008–13 period; for 2014–19 we forecast spending of US$2.6 trillion, with growth driven largely by the ICPs.

With a shift in relative spending will come a shift in industry influence.

Ovum is a leading global technology research and advisory firm.

Through its 180 analysts worldwide it offers expert analysis and strategic insight across the IT, telecoms, and media industries.

Founded in 1985, Ovum has one of the most experienced analyst teams in the industry and is a respected source of guidance for technology business leaders, CIOs, vendors, service providers, and regulators looking for comprehensive, accurate, and insightful market data, research, and consulting.

With 23 offices across six continents, Ovum offers a truly global perspective on technology and media markets and provides thousands of clients with insight including workflow tools, forecasts, surveys, market assessments, technology audits, and opinion.

In 2012, Ovum was jointly named Global Analyst Firm of the Year by the IIAR.

In addition, Ovum operates a large portfolio of technology conferences annually in Europe under the OvumLive events brand, presenting a more interactive opportunity to learn from its analysts. Its flagship event – Ovum Industry Congress – attracts over 300 end-user attendees every year.

Ovum is a division of Informa plc, one of the leading business and academic publishing and event organisers globally, headquartered in London. Informa is quoted on the London Stock Exchange.