telecommunications

Telecommunications

Industry Insight

Date August 2018

Approximate net recovery on cost

Synopsis

Current trends

  • The market for used smartphones is growing quickly, from an estimated 140 million units sold in 2017 to a forecast of 222 million by 2020
  • The U.S. telecommunications networking equipment manufacturing industry continues to experience revenue declines as imports gain market share
  • As many as 50 billion internet of things (IOT) devices are estimated to be connected to the internet by 2020

 

 Projected Values

 

 

 

Wireless capital expenditures increasing after years of declines: Telecommunications is a capital-intensive business. One of the key economic indicators followed closely by the telecom industry is the state of capital investment. Growth for providers of telecom equipment is largely fueled by the CapEx spending of wireless operators. CapEx spending by U.S. carriers is expected to increase significantly in 2018. Specifically, CapEx among the “big four” (Verizon, AT&T, T-Mobile, and Sprint) is expected to rise by 10 percent in 2018, which would be the largest increase in five years. This year operators are focusing their capital on two major endeavors: obtaining fiber and building out new spectrum bands.
 

Growing market for used smartphones: The global market for refurbished smartphones grew 13 percent in 2017, reaching close to 140 million units. This was in contrast with the global new smartphone market that grew just 3 percent, thus being outpaced by refurbished “second life” smartphones. Refurbished smartphones are pre-owned smartphones that are collected, rejuvenated, or repaired to be re-sold. Only 25 percent of all pre-owned phones are sold back into the market; however, with13-percent growth, refurbished smartphones now represent close to 10 percent of the total global smartphone market. The low growth rate of the new smartphone market in 2017 can be partially attributed to the growth of the refurbished market. The slowdown in innovation has made two-year-old flagship smartphones comparable in design and features with the most recent mid-range priced phones.
 

5G technology is coming: After years of hype about gigabit speeds that will let users download full-length movies in seconds, 5G is becoming a reality in 2018, albeit slowly at first. The 5G standard was recently completed and carriers are working with equipment manufacturers to deploy 5G-ready equipment by the end of the year. The first 5G-capable mobile phones will start to appear in 2019 but likely will not become commonplace until 2020. The first 5G devices will be mobile hotspots, which will begin to be deployed toward the end of this year.
 

Competition is growing in the U.S. wireless industry: The U.S. wireless industry is likely to become competitive with the entry of cable multi-service operators (MSOs). Comcast has already entered this space with its Xfinity Mobile offering, and Charter Communications has reiterated its plans of launching wireless service in the first half of 2019. Telecom operators’ wireline business is struggling with persistent losses as a result of competitive pressure from voice-over-internet protocol service providers and aggressive triple-play (voice, data, and video) offerings by cable MSOs. These are weighing on companies’ revenues and margins. Moreover, cord-cutting remains a major problem for all legacy pay-TV operators.