telecommunications

Telecommunications

Industry Insight

Date August 2017

Approximate net recovery on cost

Synopsis

Current trends

  • Values of infrastructure equipment, such as cable, antennas, and tower hardware, have declined in the secondary market due to carriers’ capital expenditures slowdown
  • The market for used smartphones is growing quickly, from an estimated 120 million units sold in 2016 to a forecasted quantity of 222 million by 2020
  • U.S. telecommunications networking equipment manufacturing industry revenue forecasted to decrease at an annualized rate of 3.2% for the five years ended 2017

 

 Projected Values

 

Revenue Forecast: Telecommunication Networking Equipment Manufacturing in the U.S. (in millions)

 

Products and Services Segmentation (2017)

 

Slowdown in wireless capital expenditures affecting inventory values: During the past three years, some carriers’ domestic wireless capital expenditures have slowed. U.S. operators reined in network CAPEX investments for a variety of reasons, one being that carriers have largely built out their LTE networks and have yet to commercially deploy 5G services. In addition, the U.S. wireless market has grown increasingly competitive as smartphone penetration rates have plateaued, prompting operators to restrict spending. This reduction in spending has adversely impacted the telecommunications supply chain, from original equipment manufacturers (“OEMs”) to distributors, to tower and installation contractors. Due to this slowdown, recent research has shown a surplus of equipment in the secondary market, lowering values in that channel.
 

Growing market for used smartphones: In 2016, consumers sold or traded in approximately 120 million used smartphones, generating more than $17 billion, at an average value of $140 per device. This is a 50 percent increase from the 80 million smartphones traded in during 2015, with a value of $11 billion, or an average value of $135. It is estimated that at least 10 percent of premium smartphones ($500 and higher) purchased new will end up having three or more owners before being retired, and will still be used actively in 2020 or beyond.
 

5G technology is coming: While most or all mobile carriers are testing next-gen technologies, some have advanced to field testing, and forecasters are predicting the first 5G commercial offerings toward the end of 2017. However, 5G testing is not limited to the telecom industry. Companies in industries like agriculture, transportation, and energy are also exploring the adoption of 5G technology, hoping that it will improve their ability to manage supply chains and deliver high-quality services to consumers. In 5G trials thus far, operators have noted data speeds of 35Gbps or more - fast enough to download a 5GB movie in roughly a second. Despite its importance to the marketplace, any 5G rollout is not expected to impact the used smartphone market for some time.
 

Growing adoption of cloud services: Currently disrupting the industry is the widening adoption of cloud solutions, whether in the form of cloud platform services or as “Software-as-a-Service” (“SaaS”). Growth in infrastructure-as-a-service is forecasted at 38 percent for 2017, and growth in SaaS applications is expected to be over 20 percent. However, cloud spending is often replacing expenditures that would otherwise have gone toward hardware and licensed software, leaving overall spending growth on traditional hardware and software in the low-to-mid single digits for the year.
 

Mobile data consumption growing: Between smartphones, tablets, and Wi-Fi hotspots, Americans are using approximately 400 million wireless connected devices, or more than 1.2 per person on average. Mobile data usage exploded 42 percent in 2016 to 13.7 trillion megabytes; this represents 35 times the amount of data used in 2010 and enough bandwidth to stream 1.6 million high-definition movies. Mobile video traffic now accounts for more than half of all mobile data traffic. This growth fuels the OEMs and resellers of wireless equipment and mobile devices.