Western European Operators Set to Spend US$27bn on Network Equipment

Adding subscribers at breakneck speeds in the mid-nineties, mobile subscriber growth in Western Europe has slowed to a trickle over the past few years as countries in the region reach saturation. This slowdown in growth has affected network CAPEX as well, with operators expected to spend US$27bn over the next five years, compared to US$39bn over the past five years. However, despite the slowdown, Western European operators will continue to account for a significant share of global network CAPEX as regional operators accelerate spending on 3G radio access and next generation network (NGN) core network elements over the next five years.

As the growth of mobile subscriptions in the region starts to reach anemic levels, for instance, by 2010 a mere 4.1m new subscriptions will be added translating to a growth rate of less than 1 percent, it points to the increasingly smaller role subscriber additions assumes as a driver of network CAPEX in the region over the years to come.

Western Europe’s network infrastructure CAPEX is now largely driven by demand for replacement equipment and migration to third- and next-generation networks. With most of the region’s operators already having deployed UMTS, we expect UMTS network CAPEX to total US$14.1bn over the next five years, accounting for more than half of total regional network CAPEX over that period. Spending on EDGE networks, employed by operators to complement their UMTS coverage zones, will total US$500m over the next five years, with replacement demand for aging 2G GSM and GPRS infrastructure accounting for US$9.8bn through the forecast period. Finally, with operators looking to provide converged and triple-play services in the near future, several regional operators are now focused on migrating their subscribers onto NGN, spending on which will account for the remaining US$2.6bn through 2010.

Operators from Germany, France and the UK will present infrastructure equipment vendors with the largest opportunity representing 51 percent of cumulative infrastructure spending over the next five years. Operators in these markets were one of the most aggressive in the region when it came to UMTS deployment, and will remain the leaders in deploying NGN through 2010.

Given the region’s competitive landscape, slowing subscriber growth, and demanding CAPEX requirements to deploy newer technologies, the region will likely witness a significant transformation over the next few years primarily in the form of operator consolidation and pan-regional expansion. Regional giants such as Vodafone, Orange, T-Mobile, Telenor, KPN, Telecom Italia and Telefónica Móviles, will move to consolidate their regional holdings, gradually establishing a pan-regional network, while consolidation at the country reduces total number of operators. Both of these market initiatives will further move to reduce regional network CAPEX as the increasing bargaining power of operators puts a downwards pressure on equipment prices.