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Summary

Communications provider capex has increased markedly in the six months to June 2018, in line with Ovum's five-year forecast, which predicted investment to increase in 2018 after three years of broadly flat spend since 2014. Ovum tracks capex data reported by fixed, mobile, internet, and carrier-neutral communications providers quarterly.

Early 5G mobile investments and fixed broadband expansion add to continuing internet provider capex growth

Between 2014 and 2017, mobile CSP capex fell 19%, but mobile has been a prominent swing factor this year, showing a 26% increase in the quarter to June 2018 over 2Q17, representing an acceleration of growth after the positive turning point in capex in late 2017. 5G equipment, massive MIMO, and edge computing are, we understand, some of the factors driving the increased spend. Whereas mobile has in the past been regarded as somewhat cheaper to roll out, both mobile and fixed capital intensity (capex/revenues) are converging to around 19%, with the mobile ratio having risen sharply during the last year, from 16% in 2Q17.

Fixed CSP capex was stable in absolute terms during this period, with fixed capital intensity therefore falling slightly, as fixed revenues rose slightly. Fiber optic networks, particularly super-high-speed variants, have been an increasing priority for many governments.

The fastest-growing investment spenders are still internet content providers, along with tower and data center companies, with Facebook and Tencent leading the way with increases in quarterly capex of 140% and 135%, respectively. Much of this expenditure is on new data centers, but significant purchases of new offices (which may be regarded as one-offs), niche technology investments, and product portfolio development also provided boosts.

Total communications provider capex does appear to be increasing at a run rate that may even exceed Ovum's forecast of 5.7% growth to $421bn for the full 2018 year, should investments continue on a similar path. Our eyes are on capex in the fourth calendar quarter (typically the biggest quarter for booking investments) and reported in January to March 2019, to determine the extent to which the investment is a precursor to improved revenue growth or a cost of continuing to do business.

Appendix

Further reading

Communications Provide Revenue & Capex Forecast Highlights: 2017–2022, GLB007-000096 (July 2018)

Communications Provide Revenues & Capex Forecast: 2017–22, GLB007-000081 (June 2018)

Communications Provider Revenue & Capex Highlights: 2Q18, GLB007-000142 (Forthcoming)

Communications Provider Revenue & Capex Tracker: 2Q18, SPT002-000136 (October 2018)

Telecoms Industry and Operator Benchmarks by Key Financial Metrics: 2Q18, PT0016-000008 (September 2018)

Author

Upin Dattani, CFA, Principal Financial Analyst

upin.dattani@ovum.com

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