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Summary

Communications service provider (CSP) revenues fell globally by about 9% in the first half of 2015, a worsening of 2014’s zero-growth result. Capex has not declined as fast, keeping capital intensity at unsustainably high levels. Glimmers of growth appear in the Europe and China revenue data, though.

Europe starting to reverse long slide; CSP capex trending downward

CSP revenues for 1H15 were just under $850bn, based on preliminary data (full analysis forthcoming). That means sales decline by roughly 9% in 1H15, worse than the zero growth of 2014. While some of this change is currency-related, CSPs remain under pressure – from new competitors, new services, and changing customer behavior. But there are some signs of progress worth highlighting in two very important markets: China and Europe.

Given recent macroeconomic turmoil, Europe is far from stable, but telco revenues seem to have turned a corner. For eight large CSPs reporting in euros (DT, Telefonica, Orange, Telecom Italia, Tele2, Swisscom, KPN, and Belgacom), euro-based revenues grew by just under 1% YoY in both 1Q15 and 2Q15. This growth rate is consistent with our latest forecast for Europe. The region’s modest revival comes after 10 straight quarters of YoY decline in euro terms, which dropped group revenues from €255bn in 2012 to €227bn in 2014.

China has been a growth market for many years, nearly doubling telco revenues between 2008 and 2014. Growth started turning negative late last year though, with 2H14 (total) revenues falling 5% YoY. In 2015, service revenue trends remain weak, but non-service (device) revenue trends are now compensating. China Mobile grew its non-service revenues by RMB14bn between 1H14 and 1H15; that’s actually more than its total revenue growth of RMB10bn in the same period. At the moment, the iPhone is helping to maintain CSP revenues in China.

On the capital investment front, CSP capex fell about 5% YoY in the 3Q14–2Q14 rolling 4-quarter period, holding up better than revenues. The industry’s annualized capital intensity (capex/revenues) remains high by historic levels, in the 18–19% range. This is due to two factors: large LTE-related investments, which are now slowing down, and unexpectedly weak revenue performance in certain markets.

CSPs usually avoid cutting capex suddenly when there are revenue shortfalls, if only for competitive reasons. But Ovum does expect CSP capital intensity ratios to start falling later this year and into 2016. Revenues are stabilizing, and capex (especially the mobile component) will moderate. Vendors have better prospects with Internet content providers (ICPs) such as Google, Apple, and Facebook: total ICP capex has grown by over 20% YoY for four straight quarters.

Appendix

Further reading

“OTT services lift Internet content provider capex by 12% in 1H15,” TE0006-001102 (August 2015)

Communications Provider Revenue & Capex Highlights: 1Q15, TE0006-001101 (August 2015)

Communications Service Provider (CSP) Revenue & Capex Tracker: 1Q15, TE0006-001093 (July 2015)

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

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

Communications Service Provider (CSP) Revenue & Capex Forecast: 2014‒19, TE0006-000979 (January 2015)

Author

Matt Walker, Principal Analyst, Intelligent Networks

matt.walker@ovum.com

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