Expanding Fiber Footprints and Sustainable Initiatives Drive Network Operator Market: Forecast to 2027

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Aug 02, 2023, 20:00 ET

DUBLIN, Aug. 2, 2023 /PRNewswire/ -- The "Network Operator Forecast Through 2027" report has been added to ResearchAndMarkets.com's offering.

This comprehensive forecast spreadsheet provides insights into the revenues, capex, headcount, and other metrics for three segments of network operators: telecom operators (telcos), webscale network operators (webscalers), and carrier-neutral operators (CNNOs).

For the 2023-27 forecast period, capex is expected to total $2,889 billion. Of this new five-year capex total, the splits are: telcos account for 54.5% of the total, webscalers 38.2%, and CNNOs the final 7.3%.

Top line quantitative results

Revenues from the aggregate of the three segments - telco, webscale, and carrier-neutral - were $4,109 billion (B) in 2022, and will grow to $5,052B by 2027. Three-segment capex ended 2022 at $559B, will step up to $577B in 2023, and will likely hit $596B in 2027. Webscale growth eased in 2022 but over the longer timeframe this sector accounts for most network operator growth. In 2011, webscale was less than 10% of capex, but had grown to 36.3% in 2022 and will be about 39% in 2027; CNNOs will represent 8% of 2027 capex, while telcos will constitute about 54%. Telco capital intensity peaked in 2022 at 18.1% amidst 5G buildouts but will end 2027 at about 16.5%. Regional variations will remain; the capex/revenue ratio for US telcos will average to 14.7% in 2023-27, for instance, while India will average 25.1%. Webscale capital intensity averages around 8% for the forecast period; a capex boom at Meta/Facebook has been a big plus in recent quarters, but spending from Microsoft and Alphabet related to AI (including new generative AI platforms) will also lift webscale capex in the next 1-2 years. Capital intensity is highest in carrier-neutral, as usual, well over 30% for the whole forecast period.

Headcount across the three operator segments has grown dramatically in the last decade, from 6.48 million in 2011 to 8.87M in 2022. That is roughly the same as the 2021 figure: telcos accelerated headcount reductions in 2022, and several webscalers announced layoffs. By 2027, headcount will grow to 9.1 million, but this is a sizable drop from the 10.2M expected late last year. Automation and AI efforts will facilitate this more modest headcount expansion. Nearly all future growth is from webscale, with a good portion coming from the ecommerce side (e.g. Amazon, Alibaba, and JD.COM). Revenue per employee is highest in carrier-neutral, and will see the fastest growth during the forecast as data center-focused CNNO companies account for more growth. Telcos, though, will also grow revenue per employee from about $389K in 2022 to $467K in 2027 as they learn how to do more with less, implementing automation across their operations.

Network operator interdependence

The three groups of operators that are tracked pursue a range of different business models, even within segments. Webscale revenue models revolve around a diverse mix of advertising, devices, software, cloud services, and ecommerce. Carrier-neutral providers, to simplify, rent network infrastructure to other businesses. Telcos sell subscription and pay-as-you-go services for communications services, including bandwidth, video, mobility, and enterprise services. There is a huge amount of variety in these discrete market segments. What's more important, though, is that the three segments rely on each other in important ways. Carrier-neutral players get most of their revenues from telcos & webscalers needing to fill gaps in network coverage and accelerate time to market. Telcos rely on CNNOs to lower their cost of operations, and need webscalers to provide services and apps which make their network worth using beyond telephony. Webscalers lack last mile access networks and can only deliver their services to the mass market over telco infrastructure. Webscalers also, despite big capex outlays, can only blanket the globe with data centers by partnering with CNNOs for collocation.

This interdependence will grow. The big cloud providers in the webscale market, for instance, have targeted the telecom vertical and found success; AWS, Azure and GCP combined for about $5.0B in revenues from telcos for the latest annualized period (2Q22-1Q23), up 65% YoY. Telcos are making some big bets on cloud technology as they deploy 5G core networks. Both telcos and webscalers want to provide seamless, resilient network coverage, including at the edge, and can't build it all themselves. As a result, they'll need to scale up their partnerships with carrier-neutral players like Equinix and American Tower/CoreSite. CNNOs are increasingly taking over the "dumb pipe" aspects of the network, and to be competitive and upsell they will integrate assets across fiber, cell tower and data center.

Key findings by network operator type

This forecast includes detailed breakouts for each of the three network operator types.

Telcos: telecom is essentially a zero-growth industry. Specific countries and companies do grow from time to time, in part from market share shifts, the different timing of growth cycles, or M&A. But global telco revenues have hovered in a narrow range ($1.7-$1.9 trillion) since 2011, and this will likely remain true through 2027. In 2022, revenues were $1.78T, and will grow an average annual rate of 1.8% to reach $1.95T by 2027. Capex continues to vary with technology upgrade cycles (e.g. 5G) and government actions (e.g. newly issued spectrum, or rural fiber subsidies). In 2022, capex totaled $322B, or 18.1% of revenues; that's an all-time high capital intensity, for coverage timeframe (2011-present). Capex will decline slightly through 2025, though, and then rise modestly again to reach $321B in 2027, which would be a 16.5% capital intensity. US capex surged in 2022, but will drop dramatically in 2023; we already expected this, though, so the current forecast is not significantly different. Software capex is growing more slowly than expected, and now likely to remain under 20% of total capex for the forecast period. Headcount in telecom is declining faster than expected, and now likely to fall below 4.2 million in 2027, from just under 4.6 million in 2022. Labor costs per head will revert to a growth trajectory in 2023, as telcos develop a more IT/software-centric workforce.
Webscalers: growth from webscale has lifted the overall network operator market over the last decade. Webscalers surged during COVID, by all measures - revenues, capex, employment. Demand for data center chips and related gear also surged. Now, parts of the sector are cutting back slightly. In 2022, revenues were $2.23 trillion, up just 4% YoY, far less than the average growth of 12% per year from 2011-22. It is expected revenues to grow at a ~6% CAGR through 2027. Webscale capex was $203B in 2022, a healthy increase from 2021; due in part to generative AI interest, capex will grow again in 2023 and 2024, dip for a couple years of capacity absorption, and then end 2027 at around $231B. A larger portion of this capex will be for Network/IT/software investments: around 46%, from 44% in 2022. R&D spending by webscalers will remain high but fall from the record-breaking level of 2022 (12.0% of revenues), to about 10% in 2027. As topline growth gets harder for webscalers, they will become more cost conscious and short-term oriented.
CNNOs: the carrier-neutral sector remains tiny, with just $95B in 2022 revenues, but will grow to about $132B by 2027. Webscalers and telcos alike will both rely more on CNNOs over time for expansion of their data center, tower and fiber footprints. Telcos will continue to spin out portions of their infrastructure to third-parties - both traditional CNNOs, and joint ventures like Gigapower, the AT&T-Blackrock partnership. Total CNNO capex for 2022 was $34B, and will grow to about $45B by 2027; a large chunk of the CNNO sector's expansion will be inorganic, though, via acquisition of existing assets from other sectors. By 2027, the CNNO sector will have under its management approximately 3.7 million cell towers (2022: 3.3M), 1,607 data centers (2022: 1,224), and 1.1M route miles of fiber (2022: 960K).

A selection of companies covered in the report includes:

Airtel
Alibaba
Alphabet
Altice
Amazon
America Movil
American Tower
Apple
AT&T
Axiata
Axtel
Baidu
Batelco
BCE
Bezeq Israel
Bharti Infratel
Bouygues Telecom
BSNL
BT
Cable ONE, Inc.
Cellnex
CenturyLink
Charter Comms
China Broadcasting
China Mobile
China Telecom
China Tower
China Unicom
CK Hutchison
Cogeco
Cogent
Cognizant
Comcast
Digi Communications
eBay
EI Towers
Elisa
Entel
Equinix
Etisalat
Facebook
Frontier Communications
Fujitsu
Globe Telecom
Grupo Clarin
Grupo Televisa
GTL Infrastructure
GTT Communications
HPE
IBM
IHS Towers
Iliad SA
KDDI
KPN
Microsoft
Millicom
Mobile Telesystems
MTN Group
MTNL
NBN Australia
NEXTDC
NTT
Oracle
Orange
Proximus
QTS Realty
Rakuten
Rogers
Rostelecom
SAP
Sasktel
Shaw
Singtel
SK Telecom
SmarTone
SoftBank
StarHub
Summit Digitel
Sunevision
Superloop
Swisscom
Switch
Tata Communications
Telefonica
Telenor
Telstra
Telus
Tencent
TPG Telecom Limited
Uniti Group
Veon
Verizon
Vodafone
Windstream
Yandex
Zayo

For more information about this report visit https://www.researchandmarkets.com/r/ml2hzf

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