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Summary

Internet content provider (ICP) capex continues to surge. Preliminary 1Q15 results indicate that ICP capex grew nearly 20% from the year-ago quarter, at roughly twice the rate of revenue growth. That pushes annualized ICP capital intensity to around 6.6%, up from 5.9% the year before. The increase is driven by heavy spending on data centers and related infrastructure, especially from Google, Apple, Amazon, and Alibaba.

ICP capex on track to reach $67bn in 2015

Communications sector capex continues to be driven by ICPs. Early results from 1Q15 suggest Ovum’s latest forecast is on track: ICP capex is likely to hit $67bn in 2015, up 18% from the 2014 level. This puts ICP capex at about 20% of total communications service provider (CSP) capex. Though still a small portion, that’s up from 10% of CSP capex in 2011. Market leaders Google and Apple both spent nearly $12bn over the past four quarters, putting their capital spending on par with that of CSPs America Movil, China Telecom, and Deutsche Telekom.

ICPs are spending heavily on CDNs, data centers, and related cloud infrastructure. Very large data centers are the focus of investment. Recent ICP announcements include

  • Microsoft building a 575,000-square-foot facility in Phoenix, Arizona

  • Apple opening two separate 1.8 million-square-foot facilities, one in Denmark and one in Ireland

  • Amazon building a 500,000-square-foot facility in the DC metro area and a similarly sized one in Dublin.

New data centers require purchase of servers, storage, switches, routers, power, data center infrastructure management (DCIM) software, and other technology. Some ICP procurement is direct with original design manufacturers (ODMs), often using open source technology, but systems vendors such as Alcatel-Lucent, Cisco, Ciena, and others are also finding opportunities with ICPs.

While ICP revenues are growing over 10% per year, CSP revenues are flat and their capex is tightly constrained. ICPs’ clout in the industry is thus growing. Some of them are early movers in SDN/NFV, both in standards bodies and commercial deployment. Their network and hardware designs are often publicized, thus influencing how other providers build their facilities. Ovum discusses these and related issues in a recently launched series of Network and Technology Profiles of major ICPs.

Appendix

Further reading

Google: Network and Technology Profile, TE0006-001064 (May 2015)

Facebook: Network and Technology Profile, TE0006-001059 (May 2015)

Global Data Center Analyzer: 1H15, TE0017-000038 (April 2015)

Netflix: Network and Technology Profile, TE0006-001056 (April 2015)

Communications Provider Revenues & Capex, 2014: CSPs, ICPs, and CNPs, TE0006-001046 (April 2015)

4Q14 Capex Spreadsheet: Global, TE0006-001043 (April 2015)

“OFC 2015: Data center rules Executive Forum,” TE0006-001041 (March 2015)

“Internet content provider capex grew 23% in 2014 to $57bn,” TE0006-001024 (February 2015)

Internet Content Providers & Carrier-Neutral Providers: Revenue & Capex Forecast, 2014‒19, TE0006-000987 (January 2015)

Communications Provider Capex Forecast Report: 2014–19, TE0006-000993 (January 2015)

2015 Trends to Watch: Data Center Technologies, IT0022-000156 (October 2014)

“Data center move is an opportunity for service providers,” TE0006-000892 (June 2014)

Data Center Interconnect: New Revenue Opportunities, TE008-001387 (January 2014)

Author

Matt Walker, Principal Analyst, Intelligent Networks

matt.walker@ovum.com

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