Global capital expenditures by wireless carriers, a key measure of health in the wireless industry, will decline in 2010 for the second year in a row because of continuing caution among carriers as they face cash-strapped consumers and dig out of the recession, according to iSuppli Corp.
Total capital spending on wireless communications this year will reach $120.6 billion, a decline of 1.8 percent from $122.8 billion in 2009—which already was down 8.6 percent from $134.3 billion in 2008.
Of the three major components comprising total capital expenditures, spending on software and network maintenance will make up the largest portion, amounting to $60.9 billion in 2010. In comparison, capital spending on wireless infrastructure equipment, the second largest area, will reach $36.7 billion this year. A third segment, capital expenditures on non-infrastructure equipment such as cables, plants, and site procurements, will top $23.0 billion.
Despite the overall depressed expenditure levels anticipated for this year, carriers will continue to invest selectively in key areas that provide revenue growth—specifically, data and video services—to offset declining voice revenues. And beginning next year, total capital expenditures will inch up back toward growth, increasing to $126.9 billion by 2013.
Strategies to Maintain Cash Flow: 4G vs. Older Wireless Technologies
During the next two years, all the major wireless carriers in the developed nations will be extremely cautious in their investments, iSuppli believes.
Given the continued uncertainties of the global macroeconomic environment, iSuppli expects that wireless subscribers in regions like the United States, Europe, Japan and South Korea will reduce their spending on wireless voice and data communications—in the process adversely affecting the revenue streams of carriers.
In response, carriers will scale back their investments in technology upgrades. Rather than deploy the successor 4G technology—designed to support mobile wireless access at very high data transmission speeds— carriers will focus on proliferating currently dominant 3G/3.5G technologies to enhance the data rate capabilities of their cellular networks.
Mass deployment of technologies considered as 4G, including Long-Term Evolution (LTE) and WiMAX, is not expected to occur before 2011, iSuppli believes, until carriers have recovered their investments in 3G.
In contrast to their strategy in the developed world, carriers in the developing countries mostly will continue to expand the reach of older 2.5G networks, allowing them to provide higher data transmission rates without making major investments in new infrastructure. For the majority of these carriers, the maturity of 2.5G networks represents the most economical option for extending wireless coverage to increasing sections of the population being served.
The deployment of 3G, however, is starting in a few developing countries, including India, Indonesia, Malaysia and Brazil. And in China, an aggressive 3G deployment campaign by Chinese carriers that had gotten under way in 2009 is continuing in 2010.
Carriers Look to Femto Basestations to Alleviate Network Congestion
The decision by carriers to delay the deployment of 4G technologies, coupled with the increased adoption of smart phones by wireless subscribers, is increasingly causing traffic congestion and overload problems for the networks of many carriers in the developed world.
As a result, carriers are seeking to ease traffic congestion issues in the radio access and backhaul segments of their networks by evaluating different bandwidth-offloading solutions. Several carriers in 2009 trialed femtocell base stations to provide improved indoor 3G coverage and to offload data traffic from their access networks, and then launched commercial deployments in 2010.
iSuppli believes that femtocell base stations are a viable solution to a real problem facing carriers today. To this end, 2010 will be the year of mass-market deployment of 3G femtocell base stations, iSuppli expects.
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