Telecom equipment makers hoping for a cash in from the explosion of data on mobile networks are likely to be disappointed, as intense price competition holds back margins and few operators plan additional spending. Companies like Alcatel-Lucent, Ericsson, Huawei and Nokia Siemens Networks are all banking that consumers' desire to surf the web and watch video on smart phones and laptops will force telecom operators to invest massively in mobile base stations, new LTE technology and other gear. Yet it is far from clear that operators adding data capacity will actually boost gear makers' profits because prices keep coming down. Bengt Nordstrom, chief executive and founder of telecoms consultancy Northstream, has seen a “huge build-out of capacity” at many operators in recent years, but “you don't see that in the vendors' business.” “Telecom operators don't need to increase their capex because equipment is becoming so cheap,” said Nordstrom. “They are getting a lot more for their money, and it's all standardized technology so in those bid situations, everything looks the same.” France Telecom Chief Financial Officer Gervais Pellissier confirmed that view at the Reuters Global Technology Summit in Paris on Thursday, saying the group had no plan to increase capital expenditure as a proportion of sales in the coming years to cope with the increase in mobile data traffic. “I don't think that it will so much increase investment in the future because we still see reduction in the prices of the equipment,” said Pellissier. “Also we will progressively continue to decrease our spending on 2G, which is still very high in some countries notably for maintenance.” One thing is clear: mobile traffic is set to grow. Last year shipments of smartphones, which can be used to check email, surf the Internet and watch video, grew 22 percent to reach 184 million units, and prices are dropping to make them a true mass-market device. Use of Apple's iPad and other netbooks is also expanding. Last year, Cisco estimates that data traffic on mobile networks rose 160 percent; Bernstein Research expects that traffic will double every year and half on networks in Europe over the next five years. “That's the best business opportunity that the mobile operators have,” said Johan Wibergh, senior vice-president of Ericsson's business unit at the Reuters Global Technology Summit in Shanghai. “So that generates opportunity for us to sell our equipment to the operators to increase the coverage and the capacity of the networks.” Some telecom gear makers are better positioned to benefit from the mobile data boom than others. The winners include Ericsson, which has the biggest mobile market share and what is seen as the best technology, and Huawei, which markets decent technology at very low prices. The laggard is Alcate-Lucent, which is fourth place in market share and has been historically weak in GSM mobile. Alcatel-Lucent CEO Ben Verwaayen argues that changes in the way that data is moved across networks - namely mobile data traffic being increasingly routed over fixed lines as well as the advent of LTE technology - will allow the company to overcome its traditional weakness in mobile. “There is a fundamental change in the mobility world because mobile and fixed are coming together,” he said. “That is changing the market, the products, and will eventually change the market shares of the various players over the next 2-3 years.” Analysts for the telecom gear sector say it is difficult to predict when the effects of additional investment in mobile data will trickle down to vendors. “It will depend on when the telecom operators start to compete on network quality,” said Richard Windsor, technology specialist at Nomura Securities. “When that happens, we'll see a bounce in spending, and it could happen in Europe sooner than elsewhere.” Nomura sees wireless capex up 4 percent this year and down 4 percent next year. Bernstein expects global spending on wireless gear to grow slightly below 3 percent this year, then for it to increase roughly 3 percent a year through 2013.
