A recent report from Dell’Oro Group, a renowned telecom market research firm, has shed light on the projected decline in global telecom capital expenditure (Capex) over the next three years.
The report anticipates a 2 percent Compound Annual Growth Rate (CAGR) decrease in global telecom Capex, mainly attributed to a steeper Capex deceleration in North America. Major telecoms in the United States are AT&T, T-Mobile US and Verizon.
While India and Europe demonstrate positive growth and stable trends in telecom investments, particularly wireless and wireline carrier investments, these favorable developments are not expected to offset the reduction in Capex witnessed in North America.
Specifically in the United States, a transition towards steady-state conditions is anticipated to weigh heavily on wireless activity, leading to a significant 25 to 30 percent reduction in Capex over the next three years. This reduction is seen as a part of the overall trend towards moderation in the growth of wireless-related investments.
The report indicates that the capital intensity ratios are projected to approach 16 percent by 2025, slightly below the current trendline. This projection comes amidst the highly unlikely prospect of a change in the current revenue trajectory, and the expectation of flat operator top-line growth.
Telecom Capex experienced a slowdown in growth during the first half of 2023, after a few years of favorable developments. This slowdown was in line with the anticipated pullback, especially in wireless-related investments, aligning with findings in the total telecom equipment reports. Looking ahead, conditions are expected to remain challenging in 2024 before stabilizing in 2025.
The report predicts a 7 percent drop in worldwide telecom Capex by 2025 relative to the levels observed in 2022.
“Telecom operators can raise capital intensities over the short-term, but there is a reason the trend line has stayed flat over the past 10+ years. Since we are now operating at elevated ratios, Capex acceleration remains a transitory phenomenon in a world where neither 4G nor 5G has been able to change the revenue trajectory,” noted Stefan Pongratz, Vice President of the Dell’Oro Group.
The telecom industry remains vigilant as it navigates these projected changes in the Capex landscape, aiming to adapt strategies to align with the evolving market dynamics. Main telecom equipment vendors such as Ericsson, Huawei, Nokia, Samsung, and ZTE will face more challenges in the market due to drop in Capex by telecoms.
Meanwhile, research firm MTN Consulting earlier said Capex declined by 5.8 percent – the steepest fall since 2Q20 – to post $76 billion in 2Q23. The sharp decline in the latest quarter also knocked down the annualized Capex, falling by 2 percent to post $324.9 billion in 2Q23.
