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Wireless infrastructure equipment revenues hit an eight-and-a-half year low in the first quarter of 2012 and the second quarter is not looking much better. “Total revenues for wireless network equipment reported by the vendors for 1Q2012 were only US$11.4 billion,” says Jim Eller, principal analyst, wireless infrastructure.

downturn

 

“This is the lowest amount that we have seen since 3Q2003. First quarter revenues were down 17% from the previous quarter.” The second quarter is not looking good. Ericsson’s second quarter results showed a 9% increase in sales from the first quarter. Preliminary results from Alcatel-Lucent and ZTE also predict slight increases, but fall short of expectations.

 

The concern is profitability. Ericsson’s second quarter results showed a 63% drop in net profit year-on-year. Both Alcatel-Lucent and ZTE have released profit warnings, with Alcatel-Lucent expecting a loss of around €40 million for the second quarter, and ZTE expecting a year-on-year decrease of 60% to 80% in profit for the first half of 2012, according to ABI Research.


“With continued economic uncertainty around the world, mobile network operators are holding back on investments in their network infrastructure,” says AdityaKaul, practice director, mobile networks. “Instead of buying new equipment, many operators are choosing to upgrade existing equipment, which is less profitable for the equipment vendors. We expect wireless infrastructure spending to be weak for at least two more quarters, until operators might be able to see a light at the end of the tunnel.”

The issue for many operators is the ARPU, which has decreased with competition in many markets. Mobile operators are discounting voice and data plans and offering low cost next generation LTE data services to attract additional subscribers. Traditionally, infrastructure upgrades are driven by consumer demand, and what many early adopters of LTE are discovering is the demand for LTE data services is limited to the high end business community, and as a result, infrastructure deployment is isolated to the central business district areas.

Infrastructure vendors expecting orders for nationwide LTE deployments will have to wait until a compelling event, such as LTE voice handsets becoming widely available, and mobile sound quality improving before expansion on existing infrastructure deployments occurs. In emerging markets the vast majority of subscribers are prepaid and coupled with number portability makes customer loyalty difficult.

 

Before prepaid mobile plans, operators could take the future value of a mobile contract and proportion the amount of infrastructure investment to each 1 or 2 year monthly contract. This is a difficult challenge today. Operators are spending on infrastructure upgrades based on market speculation, rather than the revenue from future contracts. In markets such as the UAE and Saudi Arabia, operators  are realising this and have adopted aggressively priced term based contract plans with the latest generation mobiles included.   

By Angela Sutherland 

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