Low Diffusion Rate of Telecom Services in Asia Pacific Presents Tremendous Growth Potential

Frost : Asia Pacific having three of the four most populated nations in the world - namely, China, India and Indonesia - characterized by low diffusion of telecom services across these dispersed geographies, presents service providers with huge potential to conquer new grounds. This prompts service providers to invest large amounts in infrastructure in order to widen their network capabilities, attract more customers, and expand their subscriber base. Asia Pacific Telecoms Service Providers CAPEX Spending, reveals that capital expenditure (CAPEX) by service providers totaled US$40.67 billion in 2004 and is expected to reach US$44.54 billion in 2008. CAPEX investments is expected to peak in 2006 at an estimated total spending of US$48.41 billion. Telecom service providers in most Asian countries continue to increase their subscriber base as a result of growth in cellular services, wholesale data services, and broadband services,” . After surpassing the landline market in 2002, the cellular market in Asia continues to widen the gap across the region. A spurt in 2.5G and 3G subscribers and subsequent increase in usage levels will boost spending in cellular network deployment and expansion. In fact, service providers across the region will continue to spend on core networks and are also likely to spend on service provision, as they want to be able to offer varied services in the future. Full-service operators are integrating voice, data and video application onto the same network to offer a variety of services and earn higher average revenue per user (ARPU).

The cellular services market in Asia Pacific shows high growth potential with an expected penetration rate of approximately 38 per cent in 2008 from 21.2 per cent in 2004. To capture the emerging market, service providers are scaling-up network coverage. Governments on their part are providing the impetus by placing high priority on establishing nationwide broadband infrastructures. This has resulted in significant investments on access technologies such as x digital subscriber line (xDSL) and cable infrastructure. The slow adoption of new services, inability of carriers to gauge the demand for services such as 3G, and delayed 3G roll-out by service providers has deferred the investment in many countries. Shortage of internal accruals, shrinking margins, falling ARPU, and complexities in debt financing are the cause for most operators being cautious, and in turn delaying the growth of this market.

However, improvement in debt availability due to strong economic growth trends in most countries is likely to trigger spending. With increased competition and the need to reduce costs, operators may opt to outsource networks to equipment vendors in the near future. This move will improve operators’ cash flow and increase efficiency in revenue generation. Vendors will be more involved in key functions such as monitoring and surveillance of end-to-end services, network performance improvements, and hardware support. The sudden surge in traffic, subscribers and technology upgrades are likely to help carriers stay in touch with the latest technology advancements. Moreover, the low diffusion rate and slow adoption of telecom services in rural areas in countries such as China, India, Indonesia and Thailand induce spending on core networks and scaling-up switching capacities. This offers service providers an opportunity for high growth and revenue potential in the region.

The Asia Pacific Telecoms Service Providers CAPEX Spending Publ 20051220