Gartner Inc. research indicates there are a number of reasons why carriers will continue to spend on network infrastructure in the next five to 10 years.
Wireless data boom
Carriers in North America have strong growth prospects but future long-term growth is going to be driven by wireless data. (See chart) Voice revenues will begin to flatten as the market becomes more saturated and newer subscribers entering the market have lower average revenue per user. SMS has been the boom of the existing market but that too will flatten out as the market becomes more penetrated. The future is in creating value on the wireless data network and to gain additional revenues from advertising. This can come from services like laptop card access, e-mail, video, music, mobile TV, search and mobile communities. The price and the value proposition for these services – with the exception of e-mail – do not resonate with most consumers today. Increasing network capacity, creating a more open access to the mobile Internet and subsidizing with advertising will allow carrier to offer a greater selection of content, a better user experience, at a lower overall price for some services like laptop card access. The result: Consumers will see the overall value and adopt wireless data services.
There are other wildcards existing like advertising and consumer electronic devices. If you don’t play in these areas, you will not win potential additional revenues. Mobile advertising dollars will fail to materialize if people do not access the mobile Internet due to a limited selection of content and a poor user experience. In order to get this revenue stream going capital-expense investment is necessary.
Electronic devices (such as cameras, gaming devices, electronic books, music players and whatever device that may need wireless connectivity) will work better in a high speed, low latency environment that may require only short intervals of data use. The ARPU for each device may be small but adding a few up can increase revenues; in addition, having a high-capacity network and lower cost per megabyte will allow for good margins for these types of service.
Voice costs under scrutiny
Wireless voice is becoming a smaller percentage of overall revenues, but it still makes up for the largest piece of overall revenue. Carriers need to maintain these revenues and reduce costs so that they can maintain margins. They will do this by increasing the amount of wireless substitution and moving to a wireless voice over Internet protocol infrastructure, but each will require additional capex. Carrier can achieve their goals in several ways:
● By improving overall quality to their subscribers, carriers are more likely to get people who are willing to switch to wireless only, which in addition to lowering churn, helps the bottom line.
● By providing better in-building coverage, subscribers are more likely to use more wireless minutes in the home.
● By continuing to drive down the voice cost curve with wireless VoIP. Network infrastructure vendors have claimed a 20% increase in capacity for wireless VoIP services.
Capex spending plans
The increasing network capacity for voice and data will require investment in 3G and 4G networks. That is why carriers will need to invest in capex both from a spectrum and a network infrastructure perspective. In addition, capex will be spent on IMS infrastructure, billing and customer care improvement that take advantage of wireless data and wireless VoIP services.
This is clearly happening now. A number of domestic wireless carriers are expected to bid in the 700 MHz spectrum auction. Most carriers have announced their capex plans for 2008, but carriers are expected to continue to spend what they did in 2007 or an incremental increase to meet their goals, and will continue to spend in the future on 4G technology in order to reach their overall goals.
Tole Hart is an analyst at Gartner Inc., which is one of the world’s leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for their clients to make the right decisions, every day. Founded in 1979, Gartner is headquartered in Stamford, Conn., and has 3,900 associates, including 1,200 research analysts and consultants in 75 countries. For more information, visit www.gartner.com.
