Wireless companies expected to slow down network capex this year: Analysts

Canadian mobile providers' expanding investments in wireless network infrastructure is expected to cool off in 2012 as the industry prepares for a 700 MHz spectrum auction later this year, analysts say. Aside from saving cash to spend during the auction, spending reductions are also related to regular investment cycles and about understanding the lay of the land before investing in new towers and backhaul spectrum supporting fourth-generation services, analysts said. “It seems logical that would tread a little more lightly on network investment until they know precisely what spectrum is available to them,” independent technology analyst Carmi Levy told The Wire Report in an interview Tuesday. In Canada, the coveted 700 MHz spectrum band will become available for mobile wireless services following the transition from analog to digital TV in major markets across the country on Aug. 31, 2011. Much of that spectrum has been designated for mobile, and the government has said it intends to hold a market-based auction to licence the spectrum this year. Levy said the country’s wireless providers are in a “preparatory stage” as they wait to see how much spectrum they will each acquire through the auction. He said spectrum acquisition will be a main priority for Canadian telcos in 2012 and 2013, which could cause investments in wireless networks to flatten out. “No one is going to be pedal to the metal on building out their network until that step is complete,” Levy said. As companies recovered from the 2008-2009 economic recession, they “loosened the purse strings” significantly to make up for two-to-three years of lost investments, he said. “But when compared to 2011, which was a bonus year , 2012 is going to have a hard time keeping up,” Levy said. “It’s not that spending is dropping, it’s that the growth rate is flattening out,” he said. “It’s flattening out after a year of robust spending across the globe after the recession.” Wind Mobile chairman and CEO Anthony Lacavera said his company’s infrastructure expenditures would remain “about the same” in 2012 but noted that “could change very quickly if things go against us in the auction.” He said all players, large and small, will continue to build out infrastructure, but added that the incumbents may also be waiting to hear the auction rules before deciding how to spend infrastructure dollars this year. “If the auction rules come out and say, 'you have to build in rural areas in order to participate,' that’s going to change the capex plans for all of the incumbents as well,” Lacavera said. Levy said any change in investment spending would be part of the industry’s buildout cycle. As Canada’s 3G and 3.5G wireless buildouts reached higher-than-ever levels in 2011, the industry’s focus shifted towards next-generation services. But without the spectrum auction rules, Levy said companies may be hesitant to move forward any further. “While the industry rearranges its deck chairs, it’s not going to be spending willy-nilly on network buildup,” he said. “They’re going to be biding their time.” Greg MacDonald, an analyst with Macquarie Capital Markets, told The Wire Report that the apparent change in telcos' capital expenditures for wireless infrastructure is “cyclical.” MacDonald said if a wireless provider invested in a new network in 2011, it won’t have to spend as much money in 2012. But “network spending is not something that companies can hold off on indefinitely,” MacDonald said, particularly as the exploding smartphone market drives consumers’ appetites for more data-intensive mobile use, which increases the demand for spectrum frequencies. “People that are getting smartphones are using more data individually than what we all thought two-to-three years ago,” MacDonald said. “That’s putting upward pressure on the value of spectrum and the need to have it.” A dip in Canadian wireless investment will come as mobile infrastructure spending is expected drop on a global scale. Reuters reported last Friday that telecom operators around the world are expected to slow down spending on their networks in 2012. Carriers in the U.S. and China will ease the pace of their mobile investments and a significant slow down in Chinese spending on mobile networks could cause a “price war,” Reuters reported. "I expect to see aggressive pricing by the Chinese firms to make up the shortfall in their home market," Earl Lum, head of research firm EJL Wireless, told Reuters. That is expected to take a bite out of revenues for equipment manufacturers Alcatel-Lucent, Nokia Siemens Networks and Ericsson, the news agency said. Levy agreed, telling The Wire Report that infrastructure prices will “soften significantly” if global demand for cellphone towers, switching equipment and transmitters falls off. “You will see intense competition for market share as they essentially drive each other to the bottom,” he said of the manufacturers that produce that equipment. Many original equipment manufacturers rely on China as a target growth market, he said, so that the industry is watching China as an indicator of demand. “If demand goes down in China, that bodes ill for markets across the globe,” Levy said. Duncan Stewart, director of research for technology, media and telecom at Deloitte Canada, said global spending tends to fluctuate over time. “If for example the LTE push slows up … that can have a strong effect in any given market,” Stewart said. Globally, he said, “it’s going to be a tough year for the equipment business.” At the same time, he added, “you can get significant local variability.” Telus Communications Co. spokesman Jim Johannsson said via email that the company's 2012 capital spending guidance, released in December, projects $1.85 billion in capital expenditures this year, which is up by three per cent from 2011. Wireless spectrum expenditures were not included in Telus’ 2012 guidance because the government has not announced the timeline for the auction and it may not take place until 2013, Johannsson wrote. Jacqueline Michelis, a spokeswoman for BCE Inc., which owns Bell Mobility, told The Wire Report that the company has invested billions of dollars in its networks in recent years “to ensure Canada’s wireless infrastructure is second to none.” She added: “We continue to do so as we increase coverage and expand 4G LTE next generation services.” —With files from Nicholas Kyonka dgrenier@thewirereport.ca

Wireless companies expected to slow down network capex this year: Analysts

News | January 18, 2012

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