Weak Japanese Telco Spending Offset by Modest Upswing in China and Growth Surge Elsewhere

(Business News & Technology News, 19 Dec 2007)

Ovum RHK recently concluded its analysis of telecom equipment spending for the first three quarters of 2007 (YTD07). YTD07 telco capex in Japan was $47.1 billion, up 6 percent from the first three quarters of 2006. Outside of Japan, though, capex rose at a much stronger 19.5 percent clip to $31.8 billion.

Wireless infrastructure is a clear beneficiary of emerging market growth, but wireline optical (ON), DSL, and packet transport (PT) segments all enjoyed increased sales. Again based on year-to-date figures, DSL was up 24 percent to $0.8 billion, PT up 15 percent to $1.8 billion, and ON was up 4 percent to $2.5 billion. Optical spending for the Asia-Pacific region excluding Japan rose at 11 percent, and a similar disparity is evident for other equipment segments.

"NTT's long anticipated next-generation network buildout is largely still on hold, so vendors heavily reliant on this market are struggling," noted Matt Walker, Ovum RHK's Senior Analyst for Network Infrastructure. AP's big emerging markets, though, are another story as carriers race to extend mobile coverage and introduce new services. India is the biggest single contributor to growth in these markets, where the capex focus is rapid construction of low-cost mobile networks. Along with India, a number of other markets in South and Southeast Asia have good growth prospects over the next several years as penetration rises.

Even China, whose equipment sector had quieted down a bit in previous quarters, has seen carrier capex intensity (capex divided by revenues) increase in the first nine months of the year, from 23.7 percent to 24.8 percent. Capacity expansions to support broadband growth and scaling new broadband value added services are factors in China, as is wireless spending aimed at improving quality of service, supporting rural expansion, and lifting ARPU of urban subscribers. Much of the growth in the Asia-Pacific's emerging markets outside Japan and China has similar sources, but network transformation is also becoming a driver in some markets such as Australia and Korea.

Some of the changes in AP since the first three quarters of 2006:
- Optical switch sales rose 38 percent to $175 million
- Multi-reach WDM sales rose 26 percent to $251million
- Edge IP/MPLS sales rose 32 percent to $923 million
- Huawei has moved to a #2 ranking in PT, from 5 for the four quarters ending 3Q06. It has maintained its top ranking in ON and DSL.
- Alcatel-Lucent has solidified its #2 rank in ON and held steady in PT and DSL.
- Capex in India and Indonesia increased at rates of 18 percent and 27 percent, respectively.
- Strong carrier interest across AP in deploying video-based services (e.g. IPTV over DSL/FTTx) and enterprise Ethernet services.

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