North American Telecom Carrier Capex Hits $63B in 2005

Infonetics: Publicly owned service providers in North America spent nearly $63 billion on capital expenditures in 2005, up 8% from 2004, and are projected to increase 4% to over $65 billion in 2006,

This increase was driven primarily by significant investments made by Cingular, whose capex jumped 117% from 2004 to 2005, and by Sprint, Verizon, and AT&T. More investments were made in wireless equipment than wireline, but spending on both is up.

Of the capex going to telecom and datacom equipment, the top three investment areas are voice, mobile RAN, and optical equipment. Voice network spending is generally trending up in dollars and as a percentage of capex due to increased spending on broadband, next gen voice, wireless networks, and the move to IP/MPLS/Ethernet networks.

As we expected, 2005 ended on a healthy note with a capex-to-revenue ratio of 17% in North America. Although we expect this trend to continue into 2006, the recent wave of consolidation among ILECs will result in 56% of total capex owned by just AT&T and Verizon.

• The combined revenue of all public North American carriers inched up 2% in 2005 to $398 billion, and is expected to top $408 billion in 2006

• Mobile subscribers increased 12% between 4Q04 and 4Q05 to 184 million; DSL subscribers increased 36% to 22 million; and cable Internet subscribers increased 21% to 26 million

• RBOCs, IXCs, MSOs, Canadian ILECs, IOCs and wireless carriers all increased their capex in 2005, while CLECs and ISPs decreased their capex fairly significantly

• RBOCs will increase their capex in 2006 by about 18%, mostly on IP/MPLS routers, optical equipment, voice equipment, broadband aggregation equipment, and mobile RAN

Infonetics’ projection for 2005 from one year ago was only 2% lower than actual results for capex and 0.03% lower for actual revenue.

Service Provider Capex Analysis, North America.

Publ 20060412