Analysys Mason, an industry consulting firm in the U.K. recently wrote an interesting report looking at long-term capex spending for the telecom industry. The prediction looks at both broadband and wireless spending.

The summary of the report is that we are entering an era where there will be ubiquitous, plentiful, affordable, and reliable broadband. Carriers will be able to rely on recently constructed or upgraded networks for many years without making additional investments.

They believe that carriers have overinvested in network capacity. The report says that worldwide telecom networks are close to delivering enough infrastructure capacity to cover foreseeable future growth – which equates to significantly lower worldwide capital spending on infrastructure for the rest of this decade. They cite several reasons for this conclusion:

• Improvements in technologies have led to exponential growth in network capacity that is far greater than the growth of bandwidth demand.
• The cost of maintaining and optimizing networks can be done at a fraction of the cost of building new broadband networks.

Analysys Mason sees this translating into far smaller capital spending for the rest of the decade. Today, capital spending is about 20% of industry revenues, and they expect this to drop steadily to become 12% by 2030.

It’s not hard to think of examples that support their premise:

• Wireless carriers have invested heavily in cellular networks in recent years and saw tremendous improvement in network performance. Median U.S. cellular download speeds reported by Ookla have grown from 20 Mbps in 2017 to 113 Mbps in June. This burst of spending puts cellular networks in good condition for much of the next decade.
• We’ve had a fiber boom in the country where ISPs have built fiber in hundreds of medium sized cities and suburbs. The expectation is that the fiber investments will be good for 50+ years and the electronics on a new network will be good for at least a decade. Newly built fiber networks needs little or no capital spending other than adding new customers to the network or repairing storm or other damage.

The report says that network capacity has been growing much faster than broadband demand. While demand growth is still healthy, the following chart shows the growth in broadband demand has dipped under 20% per year – lower than in past years. It will take many years for demand to catch up to the capacity of newly constructed or upgraded fiber and cellular networks.

The report concludes with the natural consequence of having excess network capacity. They say that the telecom industry will experience the same consequences of overproduction as other industries:

• ISPs and cellular carriers will offer huge discounts or enhanced products to gain new customers. Cellular carriers are already selling excess capacity with FWA which drives only 5% of the revenue per gigabit as cellphone service.
• In times of excess capacity, vendors begin marketing what Mason calls shiny new business models. For example, when capex spending dropped in 2023 for cellular network equipment, the industry pivoted to talking about bringing enterprise 5G networks to large businesses.

Mason is not predicting that all CAPEX spending will come to a screeching halt. There are still a lot of markets where a fiber ISP can justify building and competing with a new fiber network. But once that new network has been built, there is vastly reduced future capital spending needed in a market. We’ve seen this in the past. Many of you might remember the frenzy in the 1970s and 1980s when cable companies built huge coaxial networks. These companies have done electronics upgrades since then, but there has been no need for a second wave of huge capital spending.