Expenditures
have been converted to U.S. dollars based on average exchange rates for each year.
Most readers will remember the great new investment phase in telecommunications
in the second half of the 1990s, the relatively short, if not missing, plateau, and then the
bubble bursting decline in 2000-2001. The recovery phase of the cycle was completed by
the end of 2003. In 2004, the majority of Service Providers had cleaned up their balance
sheets, cut their debt, solidified cash flow and profit margins, and for the largest incumbents,
restored capital intensity to around 15 percent, which is considered sustainable.
Since then, large service providers have consolidated (e.g., Sprint/Nextel, Verizon/MCI,
AT&T/SBC/BellSouth), but local phone companies have yet to consolidate. In 2004, carriers
in the three regions covered in this study saw a return to CAPEX growth due to
network expansions and new technology rollouts. Going forward, CAPEX is expected
to be fairly stable with marginal increases, but overall CAPEX-to-revenue ratios won??™t
deviate much from 15 percent as Service Providers grow at a controlled pace. This is
a positive capital spending environment for the fast-growing next-generation equipment
market (including Carrier Ethernet), which will make up greater portions of overall
CAPEX over the next five years.
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