Telecom network spending seen rising this year amid 4G boom

Written by on January 27, 2015 in News with 0 Comments

PARIS/STOCKHOLM (Reuters) – Europe’s telecoms equipment makers look set for an unpredictable year because of consolidation among their operator customers and a slowdown of buildouts of faster mobile networks, known as 4G, in the United States and China.

Nevertheless, overall spending on mobile and fixed networks is expected to grow for a second consecutive year, as operators worldwide seek to improve coverage and add capacity to keep up with rising data traffic from video and smartphones.

While construction of 4G networks is largely complete in the United States, Japan and Korea, the technology is just arriving in much of eastern Europe, Latin America and Africa.

Market research firm Gartner predicts operators’ spending on mobile infrastructure, including traditional radio base stations and newer gear like small cells, will increase 8 percent this year to hit $43.36 billion (£29 billion).

Investment in fixed networks is set to rise 7.7 percent to $10.33 billion, driven by fibre broadband rollouts, it said.

“The 4G story is spreading after the first spurt of rollouts in the U.S., Japan and Korea is behind us,” Deborah Kish, an analyst at Gartner, said. “Telcos in more far-flung places from Honduras to Croatia are looking to introduce more advanced services and move prepaid customers on to contracts.”

Analysts at brokerage Bernstein Research meanwhile predict wireless equipment spending will rise 5 percent, though fixed network equipment will be largely flat.

In a rare development, Europe looks set to be a growth driver for telecom gear companies this year, with leader in mobile gear Ericsson , as well as number two China’s Huawei and number three Nokia set to benefit from any uptick in spending.


Vodafone’s 7 billion pound investment push dubbed “Project Spring” to improve its networks, part of an explicit plan to put pressure on rival operators, could spur the likes of Deutsche Telekom and Telefonica to up their own capital spending to avoid being left behind.

Vodafone Chief Executive Vittorio Colao has said the group’s big competitors were likely to increase network investments. “With the advent of 4G mobile, there is a window for number one or two players in each market to spring ahead and put more space between us and smaller players,” he said.

Clouding the picture in Europe is a deal-making frenzy in which Britain’s broadband leader BT Group is in talks to buy mobile leader EE; Hutchison Whampoa Ltd <0013.HK> has agreed to buy Telefonica’s British mobile unit O2 for up to 10.25 billion pounds ($15.4 billion); while Altice is buying Portugal Telecom.

Such deals often lead operators to review contracts with equipment vendors as they merge their networks, so spending can be slowed or put on hold.

Meanwhile Alcatel <ALUA.PA>, more exposed to the United States than rivals with about a third of sales coming from there, will have to cope with planned cutbacks at AT&T <T.N> and Verizon <VZ.N>, since both have finished building 4G networks. But the Franco-American group will get a boost to revenue from the weakening euro, which may prove a boon to Chief Executive Michel Combes in the last year of a turnaround plan.

Alcatel will also benefit from its strong portfolio of IP routers and optical products, analysts said, which operators need to strengthen networks’ ability to carry heavy data traffic. Huawei and Cisco Systems Inc <CSCO.O> are also strong in those areas.

India is also set to be a bright spot with up to 5 percent growth, analysts say, with carriers expected to invest in both voice and data networks after regulatory uncertainty on mobile licences lifts. Activity in India’s sector had ground to a near halt in recent years because of a government corruption probe on the award of mobile licences.

“India has been way behind normal investments for a long time, so there is a very significant pent-up demand,” said Per Lindberg, analyst at ABG Sundal Collier.

Ericsson will report 2014 results on Tuesday and Nokia on Thursday. Alcatel-Lucent’s results are on Feb. 6.

(By Leila Abboud and Olof Swahnberg, additional reporting by Jussi Rosendahl; Editing by David Holmes)

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