Investment focus areas of U.S. telecom carriers

US wireless operators revenue marginsTechnology Business Review (TBR) has revealed the capital expenditure (Capex) related investment trends that can be observed in the US wireless market in the next several years.

The telecom research report noted that the wireless Capex among Tier 1 U.S. operators fell 16.1 percent to $8.9 billion. The drop in Capex was mainly due to delayed small-cell deployments and decreased spending on LTE deployments and 40 percent dip in Sprint’s spending to improve free cash flow.

Investment in LTEAdvanced capabilities will be a key focus in 2017 to provide data speeds reaching 1Gbps in 2017 by combining multiple technologies, including carrier aggregation; 4×4 multiple-input, multiple-output; and 256 QAM.

The below chart is from SoftBank, which owns Sprint.
US Wireless operator performanceAT&T and Verizon, the top two telecom operators, will test pre-standards 5G services in 2017 as the telecom companies seek to gain a time-to-market advantage in 5G while resolving technical issues and optimizing the cost-effectiveness of deployments.

US-based telecom operators – AT&T, Verizon, Sprint and T-Mobile — will be making huge investment in NFV and SDN technologies in the next several years to curb operating costs and offer enhanced enterprise communication solutions. TBR said spending on NFV and SDN technologies will grow at a 116 percent CAGR from 2015 through 2021.

America operator revenue

Wireless revenue of U.S. telecom carriers rose 3.3 percent to $61.5 billion in Q4 2016. All telecom operators, except AT&T, generated higher equipment revenue from equipment installment plans (EIP) and leasing programs.

U.S. telecom carriers are looking at gaining market share by offering unlimited mobile data and by making investment in accelerated network speeds.

T-Mobile remained the only U.S. Tier 1 operator to garner sufficient subscriber additions to increase service revenue, generating growth of 10.5 percent, which is causing Verizon and AT&T to revitalize their postpaid strategies to boost phone additions in 2017.

“The success of T-Mobile One and Sprint’s Unlimited Freedom pushed AT&T and Verizon Wireless to introduce new unlimited data plans in February to remain competitive, despite the carriers’ prior reluctance toward the programs due to their lower profitability compared to tiered data,” said TBR senior analyst Chris Antlitz.

TBR predicts that the wireless pricing war will continue throughout 2017 as carriers discount their unlimited data plans to maintain market share and introduce new incentives to draw subscribers.

The success of T-Mobile One spurred the telecom operator to discontinue offering postpaid data tiers in January. Other carriers are also likely to stop offering or further de-emphasize postpaid data tiers in 2017 as the bulk of subscriber additions will be garnered by unlimited data.

The higher price point of postpaid unlimited data plans will increase carriers’ dependence on their prepaid segments to attract value-minded customers in 2017.

MetroPCS will continue to lead the prepaid market in 2017 through its expanded distribution, and Cricket will maintain high subscriber additions by capitalizing on AT&T’s network quality.

Sprint also seeks to recover its prepaid base by becoming more aggressive in pricing and relaunching Virgin Mobile.

Canada

Combined wireless revenue among Tier 1 Canadian carriers rose 4.6 percent to $5.8 billion due to stronger postpaid additions spurred by shared data programs and higher data usage arising from expanded LTE coverage and accelerated network speeds.

However, reliance on subsidized pricing programs is pressuring margins for Canadian operators, particularly within the fourth quarter due to holiday device sales. All Tier 1 Canadian operators incurred higher equipment costs, resulting in lower wireless OIBDA margins for Telus and Bell Mobility year-to-year.

The TBR report said that this trend will continue in 2017 as EIPs remain unable to gain significant traction in Canada. Equipment costs will also escalate due to more customers gravitating toward premium devices and carriers becoming more dependent on aggressive smartphone promotions to gain market share.

editor@telecomlead.com