May 10, 2004 Providence, RI -- The Asia-Pacific region is without question the hottest market for fiber-optic telecom equipment, contends a new report from KMI Research Inc. But how long will it stay hot? KMI Analysts examined telecom capital expenditures (capex) in the Asia-Pacific region and concluded that region-wide growth will slow down but remain well above that of other regions.
Through much of the 1990s, the Asia-Pacific region experienced double-digit growth in telecom revenue and a corresponding growth in capital spending. These gains were driven by strong economic growth and political support for enhanced telecommunications capability. Asia is expected to continue leading the world in economic growth over the next several years, and KMI forecasts telecom capex in Asia to grow by 5.9% in 2004, led by strong growth in China and India.
KMI's new report, "Prospects for Telecom Capex in Asia-Pacific," characterizes the Asia-Pacific region as having two distinct telecom markets. One consists of developed economies like Japan, Korea, and Taiwan, where about 20% of revenue is spent on capex to grow and improve the network (a similar ratio to that of the United States or Germany). The other consists of developing economies typified by China and India, where it is not unusual to see telecom capex at levels more than 60% of revenue.
These high levels of capital spending over the past decade reflect the developing economies' newfound political interest in the strategic and economic benefits of an effective telecom infrastructure, and it has resulted in enormous growth of their networks. But such high levels of capex are financially unsustainable over the long term. In fact, capex in developing nations in Asia has been on a downward trend over the last three years and KMI expects it will fall to an average of 40% by 2005, as newly public network operators look to improve their financial picture.
One outcome of Asia-Pacific's strong spending on telecom is that the region has become the world's largest market for optical fiber--about two-thirds of worldwide fiber deployments in 2003. This share of the world market will continue through the five-year forecast period, as the 5-10% annual growth in Asia-Pacific fiber deployments generally will match or exceed those of other regions.
China, which has become the world's largest telecom market in terms of the number of access lines and cellular subscribers, will continue installing optical fiber at high levels. Network operators in China will install more than 15 million km of cabled singlemode fiber this year--exceeding U.S installations by more than 50%. And China's annual deployments will grow at rates of 10% per year. Japan installed more than 16 million km of singlemode fiber in 2003, making it the world's largest market. But Japan will not sustain this high level, and China's demand will exceed that of Japan next year.
For more information about the report, visit www.kmiresearch.com.