Analysis: No boom for telco equipment firms in 4G revolution

Tue Jul 17, 2012 6:45am EDT
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By Simon Johnson

STOCKHOLM (Reuters) - With data traffic from video downloads and on-the-go web surfers clogging up telecoms networks, mobile equipment makers such as Alcatel-Lucent and Nokia Siemens Networks should be booming.

But while iPhone-maker Apple Inc's shareholders are waxing rich on a communications revolution driven by smartphones and tablet computers, those who make the infrastructure for the information superhighway are being squeezed.

Telecoms operators have to spend billions to upgrade to super-fast, high-capacity, fourth-generation (4G) networks designed for video and data traffic, but the overall equipment market could actually shrink as they trim budgets for the slower 2G and 3G networks designed mainly for voice traffic.

This unhappy paradox of the telecom equipment sector has chased away shareholders and could force further consolidation to eliminate some of the current five global players.

The impact of low-cost Chinese competitors Huawei and ZTE is partly to blame, such that 4G technology commands little price premium, and struggling telecoms operators are wringing harder bargains from suppliers such as market leader Ericsson.

"Ericsson's 4G sales are going to expand very strongly in the coming years, but the drop in sales in GSM and 3G will be bigger than the growth in 4G," said Martin Nilsson, analyst at Handelsbanken.

Handelsbanken reckons spending on 2G, 3G and 4G network equipment combined will shrink to $45 billion a year by 2020, down from around $59 billion in 2011, even as 4G spending grows to more than half the total.

DATA SURGE   Continued...