What is Capex Trend?

In addition to worries about what conceivably could happen to consumer demand for various communications services over the next year or so, suppliers to the telecommunications industry undoubtedly are worried about what happens to carrier demand for hardware and software.

Some, such as ABI Research, anticipate a mild dip of perhaps 1.3 percent in capital spending in 2009, compared to 2008. Others, such as Ovum, think the most-likely scenario is a reduced rate of growth through 2009.

There are other possibilities, though, with a return to 2007 levels of spending in 2009 or a severe dip of as much as 28 percent.

To be sure, carrier capital spending fluctuates over time, and many analysts believe U.S. service provider capital spending, which has been on an upswing over the past four to five years, will start to decline soon, as part of a natural part of the completion of some major upgrades by Verizon and AT&T, for example.

Looking at the average capex as a percentage of revenue, the five largest telecom providers in North America spent 18 percent of revenue in 2005, 17 percent in 2006 and 12 percent in 2007.

Capex at firms such as AT&T and Verizon in recent years has been running at 14 to 18 percent of revenue, a higher level than typically is the case, historically, and which at least some observers think will back down to more-normal levels after next-generation access network investments largely are made.

Those sorts of underlying drivers are not driven by short-term economic fluctuations, so one has to be careful extrapolating too much if a dip in capex should occur over the next several years, as that might be explained by a natural reversion to more-normal rates, not financial or economic conditions, necessarily.