North American mobile operators will hike capital investment in 2013 to support fourth generation inetwork construction, ABI Research estimates. But some think 2013 might market a peak of mobile capital investment on a global basis.
Mobile capital investment fluctuates from year to year, based on network upgrade plans, economic conditions and competitive threats, and investment has been building since about 2008, partly because of 4G network constructiion and partly because operators were cautious during the Great Recession that began in 2008.
“North American mobile cellular capital expenditure is expected to hold its ground in 2012 year-on-year, with expenditure of around $10 billion”, says Jake Saunders, VP for forecasting at ABI Research. “In 2013, mobile capital expenditure is likely to surge 4.9 percent to $10.5 billion.
Service providers are in many cases also shifting investment from older networks to 4G. Verizon Wireless, for example, has announced an end to the expansion and capacity enhancement of its 3G network, in favor of building out its 4G LTE coverage.
Mobile operators, as typically is the case, squeezed capital expenditure during the economic downturn in order to protect cash flows and maintain profits. What normally happens is a catch-up phase where deferred investment gets made.
Wireless Intelligence notes that total global mobile capex peaked at $204 billion in 2008, at the beginning of the financial crisis, accounting for 21 percent of total revenues.
However, capex then fell to $197 billion (19 percent of revenue) by 2010, as operators reacted to the crisis. In developed mobile markets operators reduced capex by eight percent in 2008 and by six percent in 2009, increasing capex again in 2010 as many operators began investing in LTE.
The typical investment slowdown in tougher economic times boosts free cash flow, at least temporarily.
The reductions in capex over the last few years saw operating free cash flow grow to $200 billion (19 percent of revenue) by 2010, up from $133 billion (11 percent of revenue) in 2007.
This means that global operator cash flows are now roughly at the same level as capex. In 2011-12, Wireless Intelligence has predicted operator capex to remain stable at 16 percent of total revenue in developed markets and 23 percent in developing markets. OFCF will account for close to 20 percent of total revenues in both regions.
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