On Air Now

Listen

Listen Live Now » 101.1 FM Green Bay, WI

Weather

Current Conditions(Green Bay,WI 54303)

More Weather »
41° Feels Like: 33°
Wind: W 14 mph Past 24 hrs - Precip: 0.11”
Current Radar for Zip

Tonight

Rain 40°

Tomorrow

PM Showers 59°

Sat Night

Mostly Clear 34°

Alerts

China, Europe to drive telecom network investment in 2014

Diners take pictures of steamed buns which Chinese President Xi Jinping ate on Saturday, at the Qing-Feng steamed buns restaurant in Beijing
Diners take pictures of steamed buns which Chinese President Xi Jinping ate on Saturday, at the Qing-Feng steamed buns restaurant in Beijing

By Sven Nordenstam and Leila Abboud

STOCKHOLM/PARIS (Reuters) - Telecoms network operators are expected to spend more on equipment for the second straight year in 2014, with China and Europe bringing a fresh spurt of growth as service providers need to build out high speed 4G mobile broadband networks.

Market research group Gartner sees global sales of network equipment to carriers rising 6 percent to $85.4 billion this year, up from 3 percent last year. Asia, excluding Japan, should grow 7 percent, and Europe and North America 6 percent.

Specialist telecoms forecaster Dell'Oro is less bullish but still expects 3 percent growth, compared with 2 percent in 2013.

The predictions are good news for Europe's network equipment makers - Sweden's Ericsson, Finland's Nokia and Franco-American group Alcatel-Lucent - but analysts do not expect a softening of brutal price competition with low-cost Chinese rivals.

Nor will all the vendors fare the same. China Mobile's huge roll-out of 4G will be more of a boon for domestic firms Huawei and ZTE that won two thirds of the work. But China is a mixed bag for Ericsson, Alcatel and Nokia, boosting sales but dragging on margins since sales there commanded lower prices.

In Europe, Ericsson and Huawei are best positioned to benefit from growth because they are major suppliers to Vodafone, which is due to spend 7 billion pounds under its 'Project Spring' program by March 2016 to increase the speed and coverage of its networks.

"Ericsson has higher exposure to Europe, so that will largely offset the weight from China contracts and protect the margins, while Alcatel-Lucent is more at risk because of its smaller scale in Europe," said Bernstein analyst Pierre Ferragu.

(Graphic: telecoms industry capex 2010-2017 see: http://link.reuters.com/rap26v)

U.S. SLOWDOWN

Analysts are less certain how much United States operators will spend this year as market leaders Verizon and AT&T have largely finished building their 4G networks, leaving them to add further capacity when customer demand requires it.

However, others want to catch up on 4G to compete. Third-largest operator Sprint plans to spend $8 billion this year and next on a major network upgrade. Backed by Japan's Softbank, Sprint chose Alcatel, Nokia and Samsung as suppliers, dropping long-time vendor Ericsson.

T-Mobile US, which is owned by Deutsche Telekom, also spent $3.3 billion in January to buy mobile spectrum from Verizon to beef up its coverage.

Gartner predicts North American operators will spend 9 percent more on mobile gear this year, from 6 percent last year. But investment bank UBS expects capital expenditures on mobile networks to rise only 1 percent and Bernstein sees it as flat.

Gartner analyst Akshay Sharma said Sprint's plan showed that upside surprise was possible. "That could be a game changer, if you are all of a sudden spending billions on network roll-outs," he said.

However, if Sprint and T-Mobile merge, as sources have said Softbank is currently working on, it could throw operators' network investment plans into question.

Europe could also grow faster than expected if Telefonica, Telecom Italia and Deutsche Telekom react to Vodafone splashing out on its networks.

"Vodafone is putting pressure on everyone. We could end up with a pretty good year in Europe in mobile equipment," said Exane BNP Paribas analyst Alexandre Peterc.

PRICES FALL

Despite a positive outlook for growth, few executives or investors expect an end to a decade-long price war launched by the Chinese vendors when they were trying to conquer foreign markets. Industry leader Ericsson's margins have dropped below 10 percent from more than 20 percent in 2005, while Alcatel-Lucent has posted an annual profit only once - in 2011 - since it was formed in a transatlantic merger in 2006.

Although some price pressure has faded as Huawei has stopped fighting for market share to focus on margins, equipment prices look set to keep falling, according to a UBS survey of purchasing managers.

Some 42 percent of respondents expect telecom equipment prices to drop even more than usual over the next year, whereas 30 percent expected a "typical" decline of 10 to 15 percent. This was a shift from the last survey when 80 percent expected prices to fall at their normal rate or less.

Nokia's network equipment business NSN could sacrifice margins to win contracts this year because it needs to boost revenues, which analysts say fell by around 17 percent last year.

"They will be aggressive, but I don't think it will totally kill pricing in the sector, because there simply aren't enough new contracts up for bid this year," said Exane's Peterc.

Nokia is first to report earnings for the fourth quarter and full year, on January 23, with Ericsson following a week later and Alcatel-Lucent two weeks later, on February 6.

($1=0.6081 British pounds)

(Editing by Greg Mahlich)

Comments