Predictions sure to go wrong

It's the season for market analysts to prognosticate and pontificate on developments for the new year. Here are some of mine:

1. Capex ticks up. Carrier capital expenditures started 2009 at a new low. Our CapEx Report showed overall 2009 wireline and wireless spending would be down -11% YtY to $55 billion with improvement throughout the year. For 2010, we expect a +4% uptick to $58 billion. The main spending driver is broadband. Carriers are scrambling to deploy broadband everywhere for new high-speed services that generate new revenues. Customers want speed for data and video, and the Recovery Act is finally kicking in with Broadband Stimulus funds as well as talk.

2. Fiber penetrates deeper. Clearly, fiber to the premise is the best long-term solution for delivering high-bandwidth services to homes and businesses. But fiber penetration in the telephone network is still low. Decades after fiber cable was introduced into telco networks and after a half-decade of FiOS and U-verse buzz, cumulative fiber penetration is still around 20% of access lines. The big push now is for 3G/4G wireless backhaul. This represents a good opportunity for telcos and cablecos alike where their fiber backbones pass cell sites. Our studies show a problem, however. Only half of the cell sites are near a fiber run. So it will take a lot of time and money to make fiber lines widely available.

3. Broadband wireless takes off. WiMAX, in both licensed and unlicensed bands, and the coming long-term evolution make the best fit to deliver high-speed Internet connections over the air. Broadband wireless allows operators to reach the most people for the least cost per household in underserved and unserved markets. Recent spectrum auctions opened up AWS and 700 MHz frequency bands specifically for broadband, and broadband stimulus funds in RUS' Broadband Incentive Program and NTIA's Broadband Technology Opportunities Program provide the incentive for small wired and wireless carriers alike to build out their licenses. Take note that one-third of the all BIP/BTOP funding applications were for last-mile wireless projects.

4. Copper lives another day. Reports of copper cable's demise are highly exaggerated. Yes, telco access lines are declining at -10% a year as customers go wireless or jump to competitive carriers. But copper loops still represent more than 70% of total working lines. Basic voice services over copper generate money for telcos as they migrate to fiber and wireless platforms. More important, the cost to replace copper lines averages nearly $1000 per line, depending on the technology. So figure a cool $125 billion in capex and many years to replace copper. Beware analysts bearing charts with “hockey stick” curves for every next-generation technology forecast.

5. Tier 2 telcos arise. Tier 2 Independent telcos, led by CenturyLink, Frontier and Windstream, represent a fast-growth segment in a mature market. They are growing through acquisition. These telcos have the opportunity to buy either small rural telcos in or around their operating areas and Verizon's (or AT&T's) neglected rural properties. Consolidating rural and small markets drives opex savings, cash flows and capex efficiencies for the consolidator. Moreover, the FCC and Justice Department are likely to favor this type of telecom consolidation to expand broadband and to balance the big RBOC hegemonies.

So there you have it. These predictions are good for about as long as it takes for this ink to dry.