Analysts throw cold water on capex expansion hopes

April 25, 2003
25 April 2003 New York and London Lightwave -- Analysts on both sides of the Atlantic recently offered pessimist assessments of 2003 carrier capital expenditure (capex) plans.

25 April 2003 New York and London Lightwave -- Analysts on both sides of the Atlantic recently offered pessimist assessments of 2003 carrier capital expenditure (capex) plans.

In the United States, Simon Leopold of Merrill Lynch said that first quarter figures showed increased softening in carrier spending, based on a sampling of carriers. Wireline capex was only 8% of sales, with wireless at 14%. Leopold had expected both figures to be in the teens. He reported that capex budgets were revised downward by 5% (from $38.0 billion to $36.2 billion) within his sampling. The figure represents a 16% decline from 2002. In addition, capex of $6.61 billion in 1Q03 represented only 18% of the revised annual budgets, which was below his seasonal expectations for about 21%.

Leopold offered several reasons for the decrease in spending. These included caution in anticipation of the FCC's Triennial Review, poor weather in the U.S. Northeast, and the war. The softened economy also played a role. While most of these drags on carrier spending are temporary, Leopold says the economy should continue to deflate spending as the year progresses.

Overall, Merrill Lynch expects carriers show a decline of 7% globally and 14% in the United States.

Meanwhile, Infonetics Research expects 2003 spending by European incumbent carriers to total euro 33.3 billion in 2003, a 13% drop from 2002. This figure, represents a capex-to-revenue ratio of 12%. At the same time, Infonetics Research calls for competitive service provider capital expenditures to dip 21% to euro 7.1 billion in 2003, representing a capex-to-revenue ratio of 24%.

The figures are contained in the company's new report, "Service Provider Roll Call and CapEx Analysis, Europe 2003."

"Our capital expenditure analysis shows this will be a year of stabilization for most service providers, many of whom need to control their debt-piles; there is also room for more consolidation between players," said Richard Webb, lead analyst of the report.

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