New challenges ahead in the 5G era

by Didier POUILLOT

After having been put on hold over the past three years, operators’ investments are expected to resume, as they commit to fibre and pursue their 5G rollouts. A revival that will be a serious challenge for a number of players on the lookout for innovative solutions.

Hitting pause…

After a substantial decrease in 2016 (-4%), operators’ investment in telecoms networks worldwide had continued to decrease over the following years, albeit at a much lower rate (between 0 and -1% a year). China, which accounts for 15% of global spending, and the Asia-Pacific region as a whole (close to 40% of the global total) are the main reasons for this overall decline. Case in point, the country’s second largest telco, China Telecom, cut its spending by more than 26% over the past three years.

Investments lagging for the past three years

Progression of operator spending worldwide (excluding spectrum)

Source : IDATE DigiWorld

5G reviving operator spending

North American operators' mobile network investments

Source : Company data and New Street Research estimates

European operators facing colossal challenges…

In Europe in particular, there is still a paradox of operators spending much less than their counterparts on the other side of the Atlantic, but a much higher percentage of their revenue. IDATE DigiWorld calculated that an additional 50 billion EUR a year would be needed to be on par with spending in the US. The economic potential of operators on the Old Continent makes it unlikely that they will catch up, not least because, on top of the price of building their network, is the already exorbitant cost of acquiring new 5G spectrum licences. Some operators have already spent record amounts. A good example is Deutsche Telekom whose CapEx to revenue ratio shot up to more than 26% in 2017, as the telco spent 7.4 billion EUR to acquire spectrum.

European operators' investment effort is peaking

Progression of Orange CapEx to revenue ratio

Source : IDATE DigiWorld and ICA

… and searching for new solutions

Given these many challenges, it is not surprising to see a growing number of sharing schemes and, especially recently, outsourcing. Towercos and other fibrecos are enjoying real success. More than two out of three towers used by operators in North America are owned by tower companies that lease access. In Europe, the percentage of towers owned by independent companies is still below 20%, but the tide is turning, as it is across the globe. 5G is likely to open the way for new initiatives in this area: wholesale spectrum market (a good example being Dense Air’s positioning in several European markets), providing players other than operators with access to frequencies (e.g. opening up access to manufacturers in Germany).

Innovative solutions for reducing/sharing investments

Percentage of cell towers owned by independent towercos, by region, in 2017

Source : EY in "The economic contribution of the European tower sector", 2019

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