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Summary

Ovum’s reviews of communications provider (CP) revenues and capex for 2015 have found that total CP capex remained stable in 2015, at $405bn, and that another zero-growth year is likely for 2016. The industry’s power balance, however, continues to shift to OTT/cloud providers (i.e. Internet content providers), which will account for about 23% of CP capex in 2020. ICPs’ growing influence in industry tech was made clear at the recent OFC Conference and Exhibition in the US.

Zero growth doesn’t mean no change

Top-line CP capex was flat in 2015, and 2016 promises much of the same. But underlying this semblance of stability is upheaval among the main buyers, which have shifting tech requirements.

On the revenue side, the CSP piece of the CP market declined 6% in 2015. When adding in the stronger ICP and carrier-neutral provider segment, total CP revenues dropped only 2% in 2015 to $2.81tn. Each quarter of 2015 saw negative year-over-year growth in CP revenues. The strong dollar clearly impacted the results, though. Europe’s telco sector, hit brutally hard in US dollar terms last year, started growing again in local currency terms.

Because 2015 CP capex was flat, measured capital intensity (i.e. capex/revenues) grew to 14.4% for the sum of the three segments. Capital intensity for CPs as a whole has grown steadily each year since 2010, despite fluctuations in the telco segment. This is because non-telcos are now building bigger and better networks. Such ICPs as Google, Facebook, Sohu, Yandex, Twitter, and LinkedIn regularly spend as much of their revenues on capex as the biggest telcos in developed markets. Amazon and Apple spend less as a percent of revenues, but like the former group they are plowing ahead with network buildouts. And Google, Facebook, and other ICPs continue to search for technologies allowing them to bypass telco last miles. In some cases these efforts are pitched as genuine attempts to expand penetration in emerging, rural markets, but in developed markets there is the upside of stronger revenues for wireline telco bypass.

First-quarter 2016 CP earnings will begin trickling out this week, starting with Verizon and Google. Once enough results are in, we’ll update our latest CP capex forecast (published in December 2015). Changes will likely be minimal. As important as these numbers, though, are the ongoing qualitative shifts in network value towards software, and SDN/NFV in particular. As for top-line revenues, one thing we’ll be watching is whether telcos are making real strides with new services platforms, especially those in the IoT/M2M and mobile payments space.

Appendix

Further reading

Communications Provider Revenue & Capex Highlights: 4Q15, TE0006-001219 (April 2016)

Communications Service Provider (CSP) Revenue & Capex Tracker: 4Q15, TE0006-001217 (April 2016)

OFC 2016: More Innovation and Volume for Data Center Intra- and Interconnect, TE0017-000066 (April 2016)

OFC 2016: Optical Innovation Abounds, TE0006-001220 (April 2016)

OFC 2016: Focus on Next-gen PON, TE0017-000065 (March 2016)

“China’s vendors gain telco market share in 2015, but obstacles are looming,” TE0006-001212 (March 2016)

“Vendors are making strides selling network solutions to non-telcos,” TE0006-001206 (March 2016)

“OTT capex exceeds $60bn in 2015 on back of data center builds,” TE0006-001187 (February 2016)

Communications Provider Revenue & Capex Forecast: 2015–20, TE0006-001167(December 2015)

Author

Matt Walker, Principal Analyst, Intelligent Networks

matt.walker@ovum.com

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