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Hello,
Thanks for your interest in our latest research. You can view a summary of our latest report below.
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This report is focused on technology spending by telecommunications network operators (TNOs, or telcos), covering 121 vendors from 2013-2019.
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Telco NI vendor revenues down 2% in 2019
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Industry hype around 5G came to a head in 2019, but telco spending was constrained by trade wars, supply chain dislocations, and weakening economic outlooks. Telco capex and opex (ex-D&A) declined by 1.7% and 2.0% in 2019, respectively. For 4Q19 alone, capex dropped at the steeper rate of -3.3% versus 4Q18.
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Weak spending by telcos resulted in a drop in revenues among their suppliers. Technology vendors recorded $212.7 Billion in sales of telecom network infrastructure (“Telco NI”) to telcos in 2019, down 1.7% from 2018. For 4Q19 alone, Telco NI sales were $56.8B, down 4.2% YoY from 4Q18. As with capex, vendor revenue growth was weaker in 4Q than for the overall year. With COVID’s dramatic arrival, the declines in 1Q20 will be worse.
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Even before COVID, there were a number of factors constraining telco spending: lack of suitable spectrum for wide-scale deployments; telco concerns about the cost of new spectrum needed for full buildouts; ongoing uncertainty about the fate of Huawei; vendors' desire to buy market share, pushing down the size of contracts; the increasing maturity of open networking (O-RAN in particular); and, the rising ability of webscale/cloud providers and the carrier-neutral sector to help telcos fill out key portions of their network infrastructure.
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Big winners of 2019: NEC, Samsung, Ericsson, Intel, and Infosys
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In 2019, the top 6 vendors accounted for 56% of the $212.7B Telco NI market: Huawei, Ericsson, Nokia, China Comservice, Cisco, and ZTE.
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On an annualized basis, Huawei's $42.9B in Telco NI revenues easily beats all rivals, and nearly exceeds the sum of the second and third ranked vendors Ericsson and Nokia. China Comservice places fourth, but nearly all its revenues are services sold to Chinese telcos. Cisco is fifth overall, and the fourth NEP. ZTE ranks sixth due largely to its position in wireless infrastructure in China and emerging markets. CommScope places 7th, up due to its acquisition, and the only cable supplier in the top 10. NEC ranks 8th due to strong Japanese fixed networks and in global microwave and submarine markets. Intel and Samsung round out the top 10 due to sales in telco data centers and 4G/5G networks, respectively. Note that some portion of Intel's revenues to telcos is indirect via OEM relationships.
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Comparing 2019 with 2018 vendor market share, some changes are due to acquisition: CommScope/ARRIS, SYNNEX/Convergys, Infinera/Coriant, Prysmian/General Cable, and Corning/3M. ZTE's growth is due to an unusually bad 2018, when US supply chain restrictions were in effect. The more notable changes are ones not linked to M&A or the US Commerce Department. In that regard, the big winners of 2019 in Telco NI are: NEC, Samsung, Ericsson, Intel, and Infosys. DyCom, Ciena, Mavenir, Amdocs, and Dell Technologies (including VMWare) also had impressive results in 2019 with the telco vertical. By contrast, the losers of 2019 in the telco market are Cisco, Technicolor, YOFC, and Juniper. Huawei also lost share in 2019, but due largely to US restrictions. Both Huawei and ZTE have China to fall back on, regardless. Consequently, within the top 25, the pressure is most directly on Cisco, Technicolor, YOFC and Juniper to improve in 2020.
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COVID’s impact on telecom
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With COVID, the prospects for 2020 are bleak. Businesses worldwide are faced with a recessionary climate and telcos are no exception. The impact of the pandemic will likely be felt across their operations. Government intervention may be partially successful in lifting economies. Telcos may also see some benefits from the rush to work from home. The bigger factor will be the rapid coming to a stop of entire industry sectors, and the reality that it will take months to well over a year to get back to normal.
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Economies will recover, and telecom networks will stay lit. Telcos will still build 5G. But 2020 is going to be a tough one for the industry. On the vendor side, we expect lots of M&A activity and some outright exits from the telco vertical. Telecom will also see new vendors, usually through a software or services angle. Overall spending will be down on the telco side, and priorities will be different. Even with this volatility, Huawei will continue to be at the center of the industry: spending the most on R&D, employing the most people, buying the most chip & component content, running the most networks, and investing more than others in influence across the industry. Huawei is not going anywhere.
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Telecom industry investment priorities
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This study is focused on vendor technology sales to telecommunications network operators (TNOs, or telcos). Telcos are facilities-based providers of voice, data/Internet, and video services, offering services to the public on a commercial basis. Telcos provide services over a mix of fixed, wireless/mobile, and satellite network infrastructure assets.
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Over the last two decades, the telecom industry has expanded dramatically in scope of services and penetration rates across the globe. Technological change has lowered the cost of building networks and providing services. At the same time, competition has eroded prices in core services and kept overall margins low. In the first decade of this century, telecom was still growing as mobile networks continued to spread worldwide. In the last decade, though, telecom revenues have flattened. To grow profits, telcos have had to focus on reinventing their cost structure. That has involved mergers, reorganizations, layoffs, new technologies and network architectures. Some telcos have divested parts of their network, and most share network resources (e.g. cell towers) with others when possible.
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As telcos evolve, they need to invest heavily in basic communication network infrastructure, as always, but also new areas in order to provide solutions beyond connectivity. Some of their investment priorities include:
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-Deploy new technologies in the network, allowing for faster or richer user services and devices (such as 5G)
-Improve economics of transmission networks as data traffic growth rates continue to be high
-Continue to flatten, disaggregate, and virtualize the network through software investments
-Invest in customer experience/QoE to lower churn, improve NPS
-Leverage cloud resources of webscale sector and selectively invest in your own cloud
-Position company as leader and trusted partner in emerging IoT markets
-Offer services to support customers' own digital transformation
-Simplify portfolio of services but build network that can charge for differentiation
-Develop adjacent market businesses and revenue streams in areas like mobile payments, digital advertising, home networking, connected cars and security
-Manage erosion of ARPU and per-subscriber margins in legacy service areas by keeping retention rates high and customer acquisition costs low
-Differentiate on the device side by (1) building stellar customer service organization, (2) investing in R&D for your own platforms or customizations (for example, Comcast)
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Best regards,
Matt Walker
Chief Analyst
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