Total network operator Capex is forecast to reach $629 billion by 2026, according to MTN Consulting research report. Telco, webscale, and carrier-neutral segments will account for roughly 51 percent, 40 percent, and 9 percent of Capex, respectively.
Total network operator Capex — across telco, webscale, and carrier-neutral – is likely to grow 13.4 percent to $520 billion in 2021, MTN Consulting said.
Capex of webscale was about 32.1 percent of total Capex as compared with 29.3 percent in 2020, the report said.
Telco Capex
Telco revenues are likely to grow nearly 7 percent in 2021 to $1,912 billion. Growth will return to 1-3 percent range per year range. By 2026, telco revenues are likely to touch $2.1 trillion.
Telcos sell subscription and pay-as-you-go services for communications services, including bandwidth, video, mobility, and enterprise services.
Telco Capex will grow at about 8 percent to $317 billion in 2021, and will hover around $330 billion for the next three years until falling to $320 billion by 2026.
Drivers for investment
# Expanding 5G RAN coverage
# Infrastructure for new 5G-based services
# Replacing Huawei gear
# Government subsidies of fiber deployment
# 5G stand-alone core projects
# Transmission and IP-layer upgrades
# Network automation
# Software investments
Software will rise from about 15 percent of Capex last year to 20 percent by 2026. The main constraint on telco investment is limited prospects for top-line growth. Telcos will remain in a constant battle with their cost structure, seeking to deploy technologies which help lower cost per bit, lower energy costs, lower the cost of running networks.
Regionally, the strongest Capex growth rates will be seen in India and Middle East Africa region. Indian operators will make 5G deployment.
The telecom industry will shrink headcount, dropping employees from 5.09 million in 2019, to 4.77 million this year, and to 4.44 million by 2026. The average employee will cost more as the skillsets required to build and run tomorrow’s networks are pricier.
Telco labor cost per employee was US$53.1K in 2019, $54.5K in 2020, about $58K in 2021, and will rise further to $77K by 2026. The share of operating expenses (Opex) devoted to labor costs will also rise, up from 22 percent this year to 24 percent in 2026.
Webscale Capex
Webscale revenue models revolve around a diverse mix of advertising, devices, software, cloud services, and ecommerce. Carrier-neutral providers rent network infrastructure to other businesses.
The webscale sector saw incredible growth rates in 2021 on the back of changes wrought by COVID: cloud services adoption, ecommerce spreading far and wide, and a strong digital ad market. Adoption of 5G devices has also helped one key webscaler, Apple. Total webscale revenues exploded from $1.71T in 2020 to about $2.14T in 2021.
Growth will slow but the sector will continue to leverage its scale and cash to push into new markets, with 2026 revenues likely to reach about $3.46T. Capex also spiked in 2021, likely to end the year at about $167 billion (2020: $134 billion), and will hit about $253B by 2026. About 45 percent of the 2026 Capex budget will be for Network, IT and software investments, from about 41 percent in 2021 when ecommerce-related investments were relatively important.
Webscalers continue to build out data center facilities at the core, across the globe, and also building out network edges to improve resiliency, latency and coverage. They’re also investing heavily in new technologies for their data centers, to economically support their growth and deliver new services and network functions.
Facebook announced a big new Capex push for 2022 aimed at implementing more AI/ML capabilities in its facilities, to support “ranking and recommendations for experiences across” its products.
Alibaba – at the recent Apsara conference — unveiled several new proprietary products, including the Yitian 710 server chip, the X-Dragon architecture, the Panjiu cloud-native server series, Alibaba AI and big data platform and a new generation of PolarDB database.
The big cloud providers in the webscale market have targeted the telecom vertical and found success; AWS, Azure and GCP recorded about $2 billion in revenues from telcos over the last 4 quarters. Telcos are making some big bets on cloud technology as they deploy 5G core networks.
Carrier-neutral Capex
The Carrier-neutral revenues will more than double between the 2020 base of $76 billion to reach roughly $155 billion by 2026. Capex of Carrier-neutral operators will be doubling, up from $29 billion in 2020 to about $56 billion in 2026.
Carrier-neutral players get most of their revenues from telcos and webscalers needing to fill gaps in network coverage. Telcos rely on CNNOs to lower their cost of operations, and need webscalers to provide services and apps which make their network worth using beyond telephony.
Carrier-neutral will invest significantly in real estate and low-tech investments, but they will also invest significant sums on transport, IP, and other types of network infrastructure. Digital Realty, for instance, recently signed a data center interconnect deal with Ciena.