Executive Summary

Mobile carrier capital expenditure is undergoing a dramatic transformation, under the combined effect of a confluence of factors, from demand for additional capacity to convergence and network evolution towards next generation networks (NGN). For carriers and their suppliers, the inherent demands of a migration to the NGN in mature markets and a reduction in the cost of network ownership have ushered in an eminently complex new world, one of open platforms and supplier ecosystems, a world were vendor services are becoming almost as important as the infrastructure itself. And so operator spending is evolving accordingly, away from mere coverage-based radio network deployment, and more towards investments in the core network, applications, and vendor professional services.

This report focuses on the analysis of operator capital spending and the assessment of the business opportunity for telecoms original equipment manufacturers (OEMs). Our analysis looks at the following vendor revenue streams:

• Infrastructure capital spending: constitutes purchases of radio access and core network components such as base stations (BTS) and mobile switching centers (MSC).
  
• Civil works capital spending: involves designing and constructing network sites and preparing them for network equipment installation.
  
• Applications capital spending: includes investments in hardware and software to rollout applications.
  
• Backhaul capital spending: refers to investments in the transmission network connecting operator switching centers.
  
• Professional services capital spending: includes expenditures in systems and solutions integration, network planning, design and optimization

The key points we make in this report include:

• CAPEX to Revenue ratios are declining, as mobile operators cut back on their capital spending and mobile revenues continue to grow. Growing maturity of the networks, operator consolidation and increasingly competitive pricing contribute to operators' ability to lower their spending while growth in the subscriber base and adoption of mobile data services increase revenue levels.
  
• The marketplace has entered a new cycle of contract awards (after the 2G and the 3G cycle), the next generation network (NGN) contract cycle. Each cycle carries implications for vendor-carrier relationships, service provider demand, and the positioning of OEMs' solutions. For those vendors that have missed out on the first two cycles, the new cycle is an opportunity to create new relationships.
  
• There is an MVNO effect on infrastructure spending: we believe mobile network operators (MNOs) will increasingly open up their networks to MVNOs to share the cost of experimenting and launching new applications and services.
  MVNOs will generate more network traffic, and as such, increase demand for additional capacity.
  Further, MNOs will adopt advanced technologies to accommodate MVNO needs.
  
• Non-infrastructure capital spending is expected to experience rapid growth through 2009.
  The growing importance of additional revenue streams is influencing the level of capital spending allocated to applications.
  The increasing complexity of the networks will benefit vendors and create new business opportunities around managed services, systems integration, performance services and other consultative services.
  
• Infrastructure capital spending is projected to go down after 2005, as mobile operators reach desirable coverage levels and complete the majority of their NGN investments.
  Overall, the total opportunity stands at $190bn between 2005 and 2009.
  
  • In mature markets, mobile network evolution is taking place both on the core and the radio access fronts.
    In fact, 80% of the projected total NGN investments of $9.2bn through 2009 will originate from Western Europe, North America, Japan, Korea, China and Taiwan.
    Operators are also investing in HSDPA and CDMA 1xEV-DO to provide high-bandwidth applications.
    
  • In emerging markets, operators are expected to continue to expand their network coverage, increase capacity and optimize networks to keep pace with subscriber growth through 2009.
    In the later years of our forecast period, we anticipate an increasing migration to next generation networks.
    
• Vendors have to change too; the evolution of operator spending will force vendors to restructure their businesses to meet operator needs.
  The new operator landscape calls for strong interoperability of vendor solutions, a focus on best of breed and the creation of vendor ecosystems.
  
• Vendors will have to go after the emerging market opportunities to sustain their traditional business.
  These markets will account for nearly 60% of the total infrastructure spending between 2005 and 2009.

Target Audience

Vendors: Identify new ways to capture mobile operator CAPEX and strategies for staying competitive

Mobile Operators: Benchmark spending against the competition to ensure priority is given to the right initiatives

Financial Community: Track where mobile operator CAPEX dollars are going and who has the most to gain

Author Bio

Ozgur Aytar: Senior Analyst, Communications, Media and Technology
Focus Areas: US, Vendor Services, Mobility

Ozgur Aytar is a Senior Analyst in the Communications, Media and Research Team at Pyramid Research.
With over six years of experience in the wireless industry, Ozgur currently works on Pyramid?s CAPEX service, tracking operator spending in network components worldwide, and Vendor Services, assessing the global opportunity for vendor-led network management and maintenance outsourcing.

Prior to Pyramid, Ozgur worked as a Director of Wireless Research at FastTrack Wireless, Inc., wherein she developed and maintained the company?s wireless research products, tracking carrier operational metrics, handset sales, and vendor market share.
She also performed consulting work for wireless carriers, application providers and equipment vendors with a focus on business analysis, evolution of wireless data networks, application and pricing development, and market segmentation.
Ozgur began her career in wireless at The Strategis Group in Washington DC.

Ozgur holds a B.A degree in Economics and Environment Studies and a minor in East Asian Studies from Gettysburg College, PA.
She is fluent in English and Turkish.