Capital expenditures on wireless infrastructure will rise marginally in 2010 among mobile carriers in Europe in keeping with the prevailing caution of the times, according to iSuppli Corp., even as carriers search for viable revenue-generating models to grapple with the explosive growth of data traffic on their networks.
Capital spending on wireless infrastructure is projected to reach $10.74 billion in 2010, up 3.7 percent from $10.35 billion last year. Spending on wireless infrastructure is a key component of overall wireless capital expenditures—considered an important metric in determining the health of the industry. Other areas of wireless capital spending include expenditures for software upgrades and maintenance, as well as capital spending on site procurements.
While slight, the growth anticipated for this year nevertheless represents a turnaround from the 19.6 percent decline in infrastrucuture spending recorded during 2009, when levels plunged in the wake of the global economic recession. The increased carrier outlay also makes Europe the only other area in the world, along with the region known as MEA (the Middle East and Africa), that will record higher capital expenditures on wireless infrastructure this year, iSuppli figures show. In comparison, declines in carrier spending are expected in North America, Asia-Pacific, and Latin America.
With the expected recovery of carrier spending in the region, Europe’s share of global infrastructure capital expenditures will account for 29.6 percent of the world total—second only to that of Asia-Pacific at 45.8 percent and well ahead of North America at 16.3 percent. In particular, the share of North America has steadily declined in the last five years, and the area will continue to face serious challenges related to the wireless infrastructure subscriber base given the approaching saturation of the market.
Capital spending on wireless infrastructure in Europe will continue to grow during the next four years—most rapidly in 2011 at an estimated 11.7 percent, up to $12.00 billion. Figure 2 shows capital spending levels among European carriers for wireless infrastructure from 2009 to 2014.
Coping with Tremendous Data Traffic
A major driver toward continued investments in technology enhancements among European carriers is the expected strong growth of data revenues in the years to come, iSuppli believes.
To support faster data transmission rates, carriers will invest in the upgrading of current 3G networks to 3.5G technologies such as HSPA+, HSDPA and HSUPA. Carriers are not likely to deploy successor 4G LTE networks until at least 2013, iSuppli believes.
The move to upgrade wireless technologies on the continent could help ease some of the problems, especially those related to data usage, currently engulfing carrier networks. Driven by the consumer adoption of smart phones, the appetite has grown among users for high-bandwidth mobile data services, such as mobile video and web surfing, accounting for the tremendous increase of data traffic on wireless networks. As a result, wireless carriers in Europe—like their counterparts in North America—are working hard to find viable business models that could capitalize on the heavy data usage in their networks in order to increase revenues.
In the United Kingdom, 3UK has begun to limit broadband traffic on overloaded cells not only by throttling data-hungry peer-to-peer applications but also by restricting video streaming to 400 kilobytes per second for every customer. In addition, the carrier has announced its intent to offer differential levels of service with varying tariff structures in order to align revenue alongside bandwidth utilization. Such ways to prioritize traffic among European carriers have met with strong disapproval, however, from telecom regulatory authorities who wish to implement net neutrality—the network paradigm that argues for data on the Internet to be moved impartially without consideration to content, source or destination.
In addition to network upgrades, European carriers are looking at network-sharing arrangements in efforts to reduce capital spending.
By the end of October 2009, the network-sharing venture between British-based Vodafone Group plc and Orange, a brand used by France Telecom, was fully operational with more than 100 sites live or under construction. The venture, also known as Cornerstone, is part of a larger deal between Spanish-based Telefonica S.A. and Vodafone to jointly deploy infrastructure in Spain, Germany, Ireland and the United Kingdom to cut costs over 10 years and save hundreds of millions of euros.
In another instance of network sharing, Deutsche Telekom and France Telecom announced an agreement to combine their U.K. mobile operations in a 50-50 joint venture. The move was formally completed in the first quarter of this year.
Such cases illustrate the pressing need among carriers everywhere in the developed world to find a profitable business model that would monetize data traffic, given the steadily declining revenues derived from subscriber plans alone in the face of near-saturated wireless markets.
Wireless penetration in Europe, for instance, exceeded 100 percent at the end of 2009—averaging 125 percent throughout the area and even topping that figure in Greece, Italy and Denmark—mainly because customers subscribe to the services of multiple carriers to avoid high roaming charges.
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