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Equipment manufacturers sweat as telcos expected to lie low on CapEx in FY24

The next several years are set to be very competitive for telecommunication equipment providers, Ericsson, Nokia, Huawei and Samsung as they look to grow market share.

Indian scenario
“With rapid rollouts of 5G infrastructure, we expect operators to look for ways to monetise the high CapEx incurred in FY23 by raising tariffs for 4G services and ARPU (average revenue per user) lift from 5G subscribers.

Large CapEx by the two telcos, Jio and Airtel has not translated into a large growth differential over Vi, and we think the industry would look to rein in CapEx. Vi’s cumulative CapEx over the last three years of ₹12,000 crore is also well below Airtel’s ₹49,600 crore, which could make it more difficult for the smallest of India’s three private telecom operators to defend its market share,” analysts from BNP Paribas said.

Global scenario
Global operators like Verizon, AT&T and T-Mobile US, are also looking to trim their overall spending. Each of those operators has expressed plans to cut their overall CapEx, which is coming off all-time highs tied to their initial 5G deployments.

Verizon spent $23.1 billion on CapEx in 2022, which was substantially higher than the $20.3 billion it spent in 2021. Much of that increase was tied to expediting the build out of its C-band spectrum holdings, which the carrier paid $45 billion to acquire. Nearly all of that C-band spectrum is supporting the carrier’s 5G network.

However, the carrier is forecasting CapEx of between $18.25 billion and $19.25 billion for 2023. That will include the final $1.75 billion of guided spend on the C-band deployment, with Verizon CFO Matt Ellis stating the year-over-year drop in total CapEx will “drive higher free cash flow in 2023 despite increases in cash interest and cash taxes.”

Verizon CEO Hans Vestberg further tempted investors by stating the carrier was currently planning around $17 billion in CapEx for 2024, “which we expect to represent the lowest capital intensity in over a decade and among the lowest in the industry. We expect we will deliver a best-in-class network experience while reducing our 2022 CapEx leveraged by more than $5 billion over the next couple of years.”

AT&T is in a similar cost-cutting boat. The carrier plans to slash CapEx from a high of around $24 billion this year to around $20 billion starting in 2024.

“We’ve got to make our capital dollars stretch a bit further, operationally, with our wireless build, which we are seeing in better than expected C-band coverage performance and our wireless investment last year,” AT&T COO Jeff McElfresh said during a recent investor conference. “All of this goes into our ability to get better return on a lower capital number next year.”

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CT Bureau

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