The combination of the faster than expected 5G ramp, positive CBRS momentum, optimism about industrial IoT and private LTE/NR, and the increased focus globally on various spectrum sharing platforms form the basis for the renewed focus on connectivity opportunities in the enterprise.

We recently published the 1H19 Telecom Capex Report. In short, we did not make any material adjustments to the overall capex forecast. With firmer readings about the market developments in the first half of the year, we remain confident that that there are reasons to be optimistic about the underlying demand drivers for both existing and new uses cases.  Following three years of declining capex trends between 2015 and 2017 and flat growth in 2018, we forecast global capex to improve at a CAGR of 1% between 2018 and 2021, driven primarily by strong demand for wireless/5G related projects in the Asia Pacific region.

Constrained operator revenue growth is expected to be one of the primary inhibitors of further telco capex acceleration. With currency-adjusted carrier revenues projected to remain relatively stable over the forecast period, strong coupling between revenue and capex growth will ensure that capital intensities remain relatively flat over time. At the same time, the pickup in capex/revenue for the 1H19 period underpinned projections that operators are comfortable with some deviation in the short-term to accommodate the rollout of 5G.

After two consecutive years of robust capex expansion in the U.S., the full year 2019 outlook remains favorable but the investment envelope beyond 2019 will likely be more subdued. The projected capex envelope for the U.S. telecom market assumes mid-band related capex will remain elevated, millimeter wave (mmW) investments will increase, and low-band driven capex will remain flat or decline.

The concept of network sharing is not new. But with operators in Europe and China announcing new passive and active sharing arrangements, we are fielding more questions than typically for this topic, reflecting a renewed concern an uptick in partnership announcements could impact the RAN market negatively.

Our current thesis is that there will be more 5G cycles than 4G cycles and improved efficiencies through sharing agreements will ultimately enable the carriers to address most of the 5G waves without material adjustments to capex/revenue.  While operators are comfortable growing the capex/revenue ratio slightly in the short-term, they are also fully aware of the demand side challenges and have no plans to return to historical capital intensity ratios.

In other words, we don’t expect any significant near-term capex cuts as a result of these engagements and instead view sharing partnerships as an opportunity for the operators to deploy broader and deeper 5G networks addressing many of the 5G opportunities with constrained budgets at a much faster pace relative to the base case of deploying 5G independently. And with non-equipment related capex and opex comprising the majority of the cell site TCO (RAN ~15%), the improved utilization will likely have the greatest impact on non-equipment related investments.

Huawei Held Highest Worldwide Share; Ciena Leads Outside of China.

The market for DWDM systems significantly grew year-over-year (Y/Y) in the first half of 2019, in part because the comparative period, 1H 2018, includes much lower sales into China caused by the US ban on ZTE. Hence, taking a look at the optical market, excluding China, gives a much better view of the market’s health this period as well as vendor strength.

We estimate that DWDM systems revenue outside of China grew 5 percent Y/Y in 1H 2019. Not surprisingly, when we account for vendor share without China, Huawei, the worldwide market leader, drops considerably below Ciena’s lead share.

In 1H 2019, Ciena held nearly 30 percent share of the optical DWDM market outside of China due to the company’s dominance in North America and growing share in international markets. Ciena’s revenue grew over 20 percent Y/Y. During this period, Huawei held the second-highest share outside of China even though the company’s market share declined slightly from both full-year 2018 and 1H 2018. Nokia continued to hold the third-highest share outside of China with revenue growth in the period exceeding the market average percentage growth of 5 percent.

The Dell’Oro Group Optical Transport Quarterly Report offers complete, in-depth coverage of the market with tables covering manufacturers’ revenue, average selling prices, unit shipments (by speed including 100 Gbps, 200 Gbps, and 400 Gbps).  The report tracks DWDM long haul terrestrial, WDM metro, multiservice multiplexers (SONET/SDH), optical switch, optical packet platforms, and data center interconnect (metro and long haul).  To purchase this report, please contact us at dgsales@delloro.com.

The overall telecom equipment and services market is projected to grow at a 1% CAGR

We just wrapped up the July 2019 5-year Forecasts for all the Telecommunications Infrastructure and Services programs covered at the Dell’Oro Group.

In this forecast, the overall telecom equipment and services market is projected to grow at a 1% CAGR, approaching $129 B by 2023, up from $121 B in 2018. Helping to drive this growth is fairly synchronized growth projections within the application mix, with mobile and fixed revenue projected to both grow at a 1% CAGR over the forecast period.

Additional key takeaways from the reporting period include:

• In order to cope with mobile data traffic that continues to grow at an unabated pace and flattish revenue trends, operators are balancing their investments carefully between the supply side related challenges and the opportunities from a demand perspective. The need to reduce TCO has been a catalyst for the overall 4G to 5G migration acceleration, benefitting not only RAN equipment but also the demand for core, transport, and services.
• Total Transport Market – including Microwave and Optical – is projected to grow at a 3% CAGR.
• The demand for Mobile Backhaul is projected to grow at a 3% CAGR while the overall RAN market is projected to grow at a 2% CAGR, over the forecast period.
• Overall 5G infrastructure projections – including 5G RAN and 5G Core – were revised upward, reflecting a more optimistic view about the 5G Core market.
• The adoption of 400 GE will help to advance the SP Router market and offset flat growth expectations for Broadband Access.
• Following five years of contractions, Network Equipment Services revenue growth is expected to improve, buoyed by improving market sentiment for telecom equipment. Total Network Equipment Services revenue – including Managed Service, Network Rollout Service, and Consulting Service – is projected to grow at a low-single digit growth rate over the forecast period.

Dell’Oro Group telecommunication infrastructure research programs consist of the following: Broadband Access, Carrier IP Telephony, Microwave Transmission & Mobile Backhaul, Mobile Radio Access Network (RAN), Optical Transport, Service Provider (SP) Router & Carrier Ethernet Switch, Telecom Capex, Wide Area IoT, and Wireless Packet Core.