Service provider capex spending remains cautious, says Instat/MDR

2 June 2003 Scottsdale, AZ Lightwave -- Service providers continued to reduce Capital Expenditures in 2002 as they restructured financially to deal with heavy debt loads, limited revenue growth, and a slow economy. According to a recent report by In-Stat/MDR, worldwide service provider Capex budgets in 2002 totaled $205 billion, down 27% from 2001. Capex budgets were about 20% of worldwide telecommunications services revenues in 2002, down from 31% of revenues at the peak level in 2000.

2 June 2003 Scottsdale, AZ Lightwave -- Service providers continued to reduce Capital Expenditures (Capex) in 2002 as they restructured financially to deal with heavy debt loads, limited revenue growth, and a slow economy. According to a recent report by In-Stat/MDR, worldwide service provider Capex budgets in 2002 totaled $205 billion, down 27% from 2001. Capex budgets were about 20% of worldwide telecommunications services revenues in 2002, down from 31% of revenues at the peak level in 2000.

Service providers limited spending on WAN equipment, making efficient use of excess capacity in their networks and delaying investments in new network architectures. WAN equipment sales declined in a number of areas: Voice circuit switch sales were down by 30%, and service providers delayed investment in next-generation packet telephony equipment, whose sales were down by 43%. Multi-service switch sales to service providers were down 42%; router sales were down 23%; and optical transport equipment sales were down 55%.

The single largest component of worldwide WAN equipment sales to service providers was mobile wireless infrastructure. Voice circuit switches remain the largest component of Capex for wireline network hardware. The data switches/routers/gateways category, which includes multi-service switches, routers, Ethernet switches, IP service switches, and packet telephony gateways and softswitches, accounted for 6% of total sales. This category will become a larger percentage of total sales in the future, as data traffic grows relative to voice, and circuit-switched voice is migrated to packet voice, say Instat/MDR analysts.

Worldwide service provider Capex budgets are expected to decline a further 7% in 2003, and then gradually increase over time, as service providers improve their financial situation and economic growth is restored. Service providers will continue to be cautious in their equipment spending, adding equipment to handle new subscribers or growth in traffic, and investing in new network architectures when they can expect capital and operations cost savings and/or incremental services revenues that will justify the investment.

Areas of equipment that should have some significant growth in sales in 2003 include packet telephony equipment, edge routers, Ethernet MAN switches, Multi-Service Provisioning Platforms (MSPPs) for next-generation SONET/SDH, and telco servers.

For more information about the report, "State of the Service Provider WAN Equipment Market--2003," visit the company's Web site at www.instat.com.

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