5G spending undeterred by economic downturn
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Fitch Ratings says telecom operators will continue putting money and resources on 5G investments over the intermediate term, even though revenue may materialize gradually.
The agency attributes this to “fairly resilient top lines and the flexibility to reduce operating costs, or even dividends before capex, if necessary. This should not have negative credit implications due to substantial cash flow and balanced capital allocation for most issuers.”
Wireless investment, particularly related to the densification of the network, continues to be an area of emphasis for telecom companies due to the strong demand for 4G LTE capacity for rapidly growing data services and to position networks for 5G’s arrival.
5G is a strategic priority for the sector due to the internet of things growth and the highly competitive and evolving competitor landscape.
Upgrades to networks are required to support increased speed and connectivity, and to maintain and grow market share.
Fitch said the company anticipates that the path for 5G adoption will be more evolutionary than revolutionary. Network deployment must be completed and customers will need to assess the added benefit and cost of next generation technology.
The ratings agency anticipates over 4 billion 5G subscriptions globally by 2028, representing around 45% of the global total.
Questions & Answers
Q.Why are telecom operators continuing to invest heavily in 5G despite a potential economic downturn?
Why are telecom operators continuing to invest heavily in 5G despite a potential economic downturn?
Telecom operators have resilient revenue streams and the ability to cut operating costs or dividends before capital expenditure. This financial flexibility allows them to maintain investment without negative credit implications, supported by strong cash flow.
Q.What is driving the continued investment in wireless infrastructure, specifically for network densification?
What is driving the continued investment in wireless infrastructure, specifically for network densification?
There is strong demand for 4G LTE capacity due to rapidly growing data services. Companies also need to position their networks for 5G's arrival, which is a strategic priority given IoT growth and competition.
Q.What kind of timeline is expected for 5G adoption by customers?
What kind of timeline is expected for 5G adoption by customers?
Fitch anticipates 5G adoption will be evolutionary rather than revolutionary. Customers will take time to assess the benefits and costs of the new technology once network deployment is complete.
Q.What is the projected global reach of 5G subscriptions by 2028?
What is the projected global reach of 5G subscriptions by 2028?
Fitch Ratings expects there will be over 4 billion 5G subscriptions worldwide by 2028. This figure represents approximately 45% of the total global subscriptions at that time.