Telco Capex (capital expenditure) is likely to grow 4 percent in 2021, according to a report from MTN Consulting.
The software component of telecom Capex will increase slightly to just under 20 percent, as software-based features and network automation solutions are more widely deployed.
Telecoms are expanding the utilization of AI/ML beyond merely digitizing internal and external interactions. The edge AI training and inference market for chipset sales is expected to grow from $2.6 billion in 2020 to $10.7 billion in 2025, at a CAGR of 35 percent, says ABI Research.
Many Service Providers (SPs) are aiming to become augmented service providers where AI augments human decision making for prediction, analysis, and new revenues.
Japanese telecom operator Rakuten has renamed its Network Operations Centers (NOCs) to Service Experience Centers (SECs) as it implements extreme automation for self-aware networks.
Telefonica Tech is a new venture to incubate new growth based on AI/ML, cloud and IoT/Big Data.
“AI/ML capabilities enable the industry to leverage IT-oriented nimbleness and scale as they seek to manage the complexities of today’s networks and establish new commercial models,” Don Alusha, senior analyst at ABI Research, said.
DriveNets, Enea Openwave, Ericsson, HPE, and Nokia are some vendors among many others that are building software-centric ways of marketing and selling solutions.
Mobile operators’ 5G rollout plans will get back on track as more spectrum auctions complete and supply chains settle. Bandwidth growth remains strong and will benefit transmission vendors. Fiber buildouts to cell sites and small cell spots will kick up again, MTN Consulting said.
Telcos will need help on the services & systems integration side as they step into Open RAN architectures. They’ll also need outside help reaping the benefits of cloud collaborations with the webscale sector. Network operations Opex budgets will be a more compelling opportunity for vendors, as telcos layoff more of their own staff and look for efficiencies.
MTN Consulting said global capex in 3Q20 was $70.7 billion, up $1.2 billion from the 3Q19 figure of $69.5 billion.
Most operators saw Capex fall, however, and have a conservative outlook in their 5G build strategies. China accounts for the 3Q20 growth. In 3Q20, China’s telco capex in 3Q20 was an estimated $14.7 billion, which is $2.9 billion higher than the 3Q19 figure. That increment is more than double the overall market’s growth. Without China, global capex declined significantly in 3Q20.
The telecom industry entered 2020 with high hopes for 5G: telcos hoped for revenue upside from faster speeds and new services, while vendors hoped for an increase in network capex.
MTN Consulting said 5G is going to be a long slog. Marketing and device subsidies may encourage rapid 5G adoption but doesn’t create profitability.
In 3Q20, KT reported a blended wireless ARPU of 31,620 Won, down from 32,372 in 3Q18, before 5G. KT’s EBITDA margin in those two quarters was an identical 19.9 percent, and net income margin a bit lower in 3Q20 (3.8 percent, v. 4.0 percent in 3Q18).
The market for telecom network infrastructure revenues in 3Q20 rose 4.7 percent to $55.6 billion — due to revenue surges at Huawei and ZTE, stemming from a Chinese government push to deploy 5G rapidly. For all vendors other than Huawei and ZTE, telco NI revenues declined by 1.4 percent in 3Q20.
On an annualized basis, telco NI vendor revenues totaled $216.3 billion in 3Q20, down 1.7 percent from the 3Q19 annualized result. That is broadly consistent with telecom operator spending: annualized telco capex and opex (ex-D&A) declined by 2 percent and 4 percent respectively in 3Q20, relative to the 3Q19 results.
Top 10 vendors in 3Q20 annualized market
Overall vendor rankings for the top 10 did not change much in 3Q20, on an annualized basis. Huawei’s $46.2 billion in Telco NI revenues easily beats all rivals, and exceeds the sum of the second and third ranked vendors Ericsson and Nokia.
ZTE pushed into fourth place on the back of domestic 5G revenue growth. China Comservice dropped one spot to fifth, thanks to its support from Chinese telcos.
Cisco is sixth overall, from fifth in 2Q20 and fourth two years ago. Cisco remains dominant in the router market but a steady decline in telco sales have eroded its overall position.
CommScope places 7th, and the only cabling & connectivity vendor (CCV) in the top 10.
NEC ranks 8th due to strong positions in Japanese fixed networks and global microwave and submarine markets. Intel and Amdocs round out the top 10 due to sales in telco data centers and 5G equipment, and OSS/BSS, respectively.
Winners and losers
CommScope, Capgemini, IBM, Casa Systems, Amdocs and Ribbon Communications were among the vendors with noticeable share gains in 3Q20, but M&A activity played significant roles in all cases. Ericsson’s share gain are also due in part to an acquisition (of Kathrein), but more significant is its aggressive bid for 5G business in China.
Beyond M&A, increased 5G-related spending in Japan helped NEC, ITOCHU, and Fujitsu, while the same factor lifted Huawei and ZTE in the share tables.
Restrained fiber construction spending due in part to COVID-19 hurt Prysmian, Fiberhome, and Corning.
Share declines at HPE and Cisco are due to competitors’ outpacing them in the areas of cloud native and mobile core deployments, while drops at Nokia and Samsung are in part deliberate.
Nokia has stepped back from the China market, and margins have benefited.
Samsung’s network infra division remains focused on a small number of country markets and hence faces revenue volatility. Samsung had a significant 5G win at Verizon recently, though, which should lift its 2021 results.
Intel recorded the most significant share increase in 3Q20: up 0.6 percent vs. 3Q19, on an annualized basis. Despite Intel’s recent hiccups in its chip development pipeline, its bid for telco business has resulted in steady revenue growth in that segment.
There are clear signs that Intel is not planning to let up on its telco market push: a recent partnership with IBM’s Red Hat subsidiary, a new CEO hired away from VMWare, and progress in the Open RAN market (e.g. Dish Network, Rakuten).