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Telecom carriers entering global economic crisis on solid ground; tough road ahead

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Communications market research firm Infonetics Research reports that worldwide service provider capex (capital expenditures) are on track to reach $275 billion in 2008, up 10.5% from the previous year. Much of the growth is due to currency appreciation against the US dollar, which peaked in July 2008.

Infonetics' report is projecting a 2% downturn in worldwide carrier capex in 2009, led by big cuts by Asia Pacific service providers, followed by a flat 2010 and a slow return to growth in 2011 with the start of a new investment cycle.

While a telecom spending plateau was forecast by Infonetics in 2006 to begin in 2009, the global turmoil has shifted it to 2008.

"In this tough economic environment, service providers will sweat their assets, deplete inventories, reallocate capital to revenue generating areas, and use some capital to buy back stocks (take a look at BT). The good news is: most service providers have clean balance sheets, so they are entering the global crisis on solid financial ground. They went through their correction when the Internet/telecom bubble burst, resulting in deep double-digit capex cuts. The bad news is: dismal economic events have culminated in drastic declines of market valuation among companies in nearly every industry/sector, limiting funds to sustain or grow telecom services over the next 6-12 months, leading to capital spending constraints among vendors and carriers. In North America, EMEA, and CALA, we foresee only low-to-mid single-digit cuts because service providers there are already operating at moderate to low capital intensity (the ratio of capex to revenue). But in Russia and Asia Pacific, where capital intensity has been very high, we expect steep, double-digits capex cuts from some service providers," said Stɩphane Tɩral, principal analyst at Infonetics Research.

Other highlights from the report:

  • Wireless services will help keep service providers' revenue afloat, and prevent telecom from a major slump
  • Worldwide service provider revenue is on track to reach $1.63 trillion in 2008, up 9.5% from 2007, due in large part to currency appreciation, with the rest coming from wireless
  • The world's 10 largest service providers (ranked by 2007 revenue) are AT&T, Verizon, NTT, Deutsche Telekom, France TÉ©lÉ©com, Vodafone, TelefÉ≥nica, China Mobile, BT, and Sprint

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Tags: asia pacific  deutsche telekom  vodafone  capex  china mobile  verizon  infonetics research