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Summary

Omdia’s latest communications provider revenue and capital expenditure forecast provides updates for COVID-19 and industry developments, leveraging the expertise of Omdia’s regional analysts around the world. It underlines the relative resilience of revenue for most telecoms service providers, and the potential to control investment timing, acting to preserve their strong free cash flows.

Communications provider capex set to drop in 2020 before resuming gradual uptrend

Amid the COVID-19 pandemic, Omdia forecasts fixed service provider revenue will continue to rise at a modest rate of 0.8% in 2020, but predicts that mobile revenue will fall by 2.7%, reflecting influences such as loss of roaming revenue and lower usage in prepaid markets. These are significant but show relative resilience in comparison to most other industries. We forecast slightly declining absolute telco capex in 2020, but a steady recovery during the next three years as 5G is built out (albeit slightly more slowly than before), and with investments in fiber, fixed wireless access, backhaul, fronthaul, and IT/software remaining important. Some telco investment in 2020, particularly on the fixed side, was likely directly affected by lockdowns, sickness, and social distancing measures. Capex covers several types of expenditure, combining maintenance and immediate needs with expansionary or developmental investment to prepare for future customer needs and revenue opportunities. The latter category may be viewed as more discretionary by some CFOs, especially where indebtedness or macroeconomic uncertainly are particularly high, who may enact near-term investment reductions to preserve free cash flow.

Looking out to 2025, secular trends such as increased bandwidth consumption, 5G and new IoT and enterprise services applications, together with benefits from industry consolidation, should, we believe, raise telecoms revenue growth to above 2%, led by mobile.

For internet platforms, data centers, and tower companies, we forecast sharper slowdowns in revenue growth in 2020—albeit from higher absolute levels—to 8.2% for internet content providers and 4.6% for carrier-neutral providers, although prospects vary considerably depending on individual business models. Absolute capex is expected to rise 3%, supporting the much higher top line growth rates, but representing lower capital intensity than recent years. “Stay at home” guidance has benefited some of the internet companies, enabling both commerce and entertainment, as digital evolution marches on. However, we have moderated our longer term growth prospects, believing that some future growth has been brought forward into 2020, with double-digit growth rates challenging to continue as these companies become larger.

For details of our full forecast with country and operator breakdowns and for our quarterly tracker, please contact your Omdia representative.

Appendix

Further reading

Communications Provider Revenue & Capex Forecast: 2020–25, GLB007-000407 (July 2020)

World Telecoms Financial Benchmarks – Group Guidance Tracker, PT0016-000004 (June 2020)

Communications Provider Revenue & Capex Highlights: 1Q20, GLB007-000412 (July 2020)

Telecoms Industry and Operator Benchmarks by Key Financial Metrics: 1Q20, PT0016-000015 (July 2020)

Author

Upin Dattani, CFA, Head of Financial Analysis

[email protected]

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