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What's all this fuss about telecom carrier capex?

Telecom carrier capex spending appears stable, with less on legacy and more on optical and Carrier Ethernet, according to IDC Program Director Eve Griliches. Service providers need to keep up equipment spending to remain competitive.

Editor's note: Given the economic climate, any rumors of reduced telecom carrier capex spending can send ripples of fear through the entire telecom industry. IDC Program Director Eve Griliches, who carefully tracks the telecom equipment market, has been out talking to service providers in Europe and the U.S. and is here to set the capex record straight.

We talked with about 12 service providers last week, mostly out of the EU about their capex spending plans given the current environment, and none of them are planning on reducing their capex. Neither was the one U.S. Tier 1 provider we talked with a few weeks ago.

 …keep in mind that carriers must continue to spend what they have allocated in capex to remain competitive.
Eve Griliches
Program DirectorIDC

It seems that some comments from AT&T have been taken out of context. AT&T typically front loads its spending in the first half of each year and implements in the second half. Why some vendors are now claiming that they are seeing spending fall off at AT&T is simply amazing. We have all known how this works for awhile.

Two things are happening here:

  • First, capex spending on a macro level is being reshuffled and lowered on legacy equipment (read: Sonet/SDH, ATM switching, etc) to enable the same spending -- if not more -- on the hot deployment areas like optical and Carrier Ethernet.
  • Some vendors are simply suffering because other vendors are winning business. So rather than report that the competition is strong, they are reporting that capex is weakening. This is simply incorrect in the microcosm of the telecom space.

While no one can predict exactly what will happen to the overall worldwide economic environment, keep in mind that carriers must continue to spend what they have allocated in capex to remain competitive. The vendors who are best placed to take advantage are those with momentum in equipment sales within the carrier networks, while those reporting issues and spin-outs are likely to suffer more as the markets settle.

About the author: Eve Griliches is a program director within IDC's Telecommunications Equipment group. She provides in-depth insight and analysis on service provider routers and switches, as well as the optical networking market. Griliches also provides critical business intelligence on emerging technology trends and their impact on the overall telecom market space. Griliches joined IDC in 2005 after 10 years in product management for a number of network equipment vendors.

This was last published in October 2008

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