Carrier-neutral provider revenues grew 10% in the year ended March 2016, to $31.8bn. That is nice growth given that communications service provider (CSP) revenues are falling, but carrier-neutral providers (CNPs) only account for roughly 1.1% of total communications sector revenues. However, CNPs operate a big portion of public network infrastructure. As telco business models evolve, and Internet content providers (ICPs) expand their global networks, the carrier-neutral sector is poised for good growth.
We break the universe of communications providers (CPs) into three groups: CSPs (or telcos), ICPs (cloud/over-the-top [OTT] providers), and CNPs. As the telecoms industry evolves, many telcos are moving more into cloud/OTT services – becoming more like ICPs – and are often either divesting or managing separately some of their infrastructure assets. The CNP segment is part of this evolution. To grow their network capabilities, telcos often rent space (or services, such as interconnection) from CNPs, and telcos' infrastructure spin-offs add to the size of the CNP segment.
During the period 2Q15 to 1Q16, CNP revenues were $31.8bn, and capex was $8.8bn. By both measures, CNPs are small – just 1.1% and 2.2% of CP revenues and capex, respectively (where CP includes CSPs, ICPs, and CNPs). However, carrier-neutral providers' capital intensity is above average, and they continue to buy assets from other providers and telco spin-offs.
That has left them with big networks. Data center-focused CNPs such as Equinix and Digital Realty operate over half of the world's data centers, per Ovum data. Tower-focused CNPs such as Crown Castle now own a big share of the world's cell towers, over 60% according to one industry source (TowerXchange). Although tower CNPs sell largely to mobile operators, data center specialists sell to a broad range of verticals – cloud, content, IT services, financial services, other enterprises, and telcos. They also own some huge facilities. ICPs such as Facebook and Google are more affiliated with web-scale data centers, but CNPs operate at least nine facilities in the 1 million-plus square foot range (e.g. GVA, QTS, and CyrusOne). Additionally, CNPs operate the all-important distribution data centers, enabling interconnection to CSP customer access networks.
CNPs are growing organically, because they spend nearly 30% of revenues on capex, far more than telcos. However, the bigger changes in this segment come from acquisition. Tower deals are a sizable part of communications M&A, accounting for about 10% of all sector deals over the last 12 months. Data center M&A is also happening, with notable deals last year including Equinix–Telecity ($3.6bn, May 2015) and Digital Realty–Telx ($1.9bn, July 2015).
Some of these M&A deals have involved divested telco assets; last year's biggest deal was American Tower's payment of over $5bn for 11,300 Verizon towers. Telco spin-offs are also emerging as independent players, for instance Telesites (America Movil towers in Mexico); Windstream's data center business (now part of TierPoint LLC); CyrusOne (Cincinnati Bell's old data center division); INWIT (towers from Telecom Italia); and Telxius (Telefonica towers and subsea cables). The biggest example, however, is China's tower company China Tower. Although created by government order, it is now a commercial player – with aspirations of using its land and tower assets to enter new markets (e.g. electric auto charging stations).
In December 2015, Ovum provided a forecast for the CNP market (Communications Provider Revenue & Capex Forecast: 2015–20). This projected a 2020 CNP market with revenues and capex of $51.2bn and $10.7bn, respectively. That assumes a tailing off of the segment's growth. However, the CNP market has matured in the last two to three quarters, with several large tier-1 CSPs engaged in asset spin-offs. Actual growth is ahead of base expectations. Therefore, we are guiding clients to the optimistic scenario for this market segment, as outlined in the Communications Provider Revenue & Capex Forecast: 2015–20 forecast.
Data Center Market Watch,TE0017-000068 (June 2016)
Global Data Center Analyzer: 2Q16, TE0017-000067 (May 2016)
Digital Economy 2025: Telecoms Core Scenario, TE0009-001505 (March 2016)
Communications Service Provider (CSP) Revenue & Capex Tracker: 4Q15, TE0006-001217 (April 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)
Digital Economy 2025: Wholesale Telecoms, TE0012-000548 (November 2015)
The Neutral Host Model: The Devil is in the Detail, TE011-001149 (August 2012)
Matt Walker, Principal Analyst, Intelligent Networks
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