A recent report notes that Canadian telcos plan to spend more money on new equipment in 2004 than they did last year. But while increased capital expenditures can spell improved service for big business customers, an industry analyst says that’s not necessarily the case this time around.
IDC Canada Ltd.’s telecom analyst Lawrence Surtees coauthored the report, Upswing At Last: Canadian Telecom 2004 Capital Spending Forecast Outlook. The document notes that telco capital expenditures (capex) might be on the rise after years of descent.
It indicates that service providers’ initial 2004 capex budget forecasts reflect a six per cent increase in spending, bringing the industry-wide capex total to $5.6 billion. That’s a far sight better than last year, when carrier spending dropped nearly 27 per cent compared to 2002.
“Some of this money is going to be spent on enterprise services,” Surtees said in an interview with Network World Canada.
But he also suggested that business customers shouldn’t hold their collective breath for improved service as a result of telcos’ newfound will to spend.
Surtees described the case of Bell Canada, which provided him with a breakdown of expected capex spending by customer segment: consumer, small- and mid-sized enterprise (SME), and large enterprise.
“Both consumer and SME received budget increases this year from Bell,” Surtees said. “The one segment that got dinged with a reduction is the enterprise space, interestingly enough.”
According to the report, Bell’s consumer segment will witness a 15 per cent increase this year. The SME space will get a 25 per cent budget boost. The enterprise segment, however, will experience a 15 per cent reduction.
Surtees said it’s odd that Bell would decrease spending on enterprise services.
“It’s pretty hard to square that with some of the professed objectives and priorities being articulated by Michael Sabia [CEO of BCE Inc., Bell’s parent company], to wit: that they they’re migrating companies to IP,” Surtees said. “Who and what are they migrating first? Business and enterprise customers. So why does the enterprise space face an overall budget reduction? I find it kind of strange.”
BCE spokesperson Nick Kaminaris in Montreal said Bell is focusing on “new growth areas,” and the carrier plans to keep its capital intensity radio (capex compared to revenue) near 17 per cent.
So what can Bell’s enterprise customers expect? Surtees said, “You can pretty much rest assured that most of the nickels spent in that segment are going to new stuff: IP networks, new billing platforms. That, in the long term, is one of the areas where all of the carriers are going to have to devote more resources: trying to improve and beef up their back offices.”
Surtees said it’s tough to know exactly what other telcos plan for each customer segment, pointing out that most carriers didn’t provider a segment-by-segment spending breakdown for his report, like Bell did.
Even if increased telco capex doesn’t necessarily spell a bonanza of new enterprise-class services, it does indicate that the telecom industry might be growing healthier.
“Capex budgets have finally reached the valley floor,” reads the IDC Canada report, noting a modest upswing in spending among incumbent local exchange carriers (ILECs). Whereas companies like Aliant Inc., Bell and Telus Corp. spent a grand total of $3.9 billion in 2003, the ILECs are looking to spend closer to $4.1 billion in 2004.
According to the report, carriers are focusing on building more efficient-to-run networks, new services like IP-based virtual private networks (VPNs) for enhanced customer security, and extended links via metropolitan-sized Ethernet networks and fibre-optic cable-runs to office towers. Improved broadband Internet service coverage, increased digital wireless service coverage and upgraded operation support systems (OSS) are also on the table.
The report quotes Frank Dunn, Nortel Networks’ CEO, on what kinds of technology he thinks telcos will spend money.
“They’re going to be graceful spends, but on new technologies: on packet, on broadband, on dynamic optical, on a multi-service engine,” Dunn said. “And it will go away from traditional spends. So I don’t expect to see capital expenditures go up dramatically. What I expect to see is a dramatic shift in spending patterns.”
To learn more about IDC Canada’s capex report visit www.idc.ca.