The capex outlook for 2003

So what’s the capex picture look like for 2003?

UBS Warburg recently came out with U.S. and global wireline and wireless capex projections for this year and next, and the picture is mixed. The firm sees wireline/wireless capex bottoming in the U.S. and globally this year, and has raised its global outlook for 2004 – but deeper declines are expected this year from last.

The firm expects U.S. wireline capex to decline 12% in 2003 from 2002, which should be welcome given that UBS Warburg expects 2002 U.S. wireline capex to be down 55% from 2001. Globally, the firm expects wireline capex in 2003 to be down 6% from 2002, which is a lower forecast from previous UBS Warburg estimates of a 3% decline.

The firm also lowered its combined global wireline/wireless capex estimates from a 3% decline to a 6% decline. Carriers are expected to spend between $157 billion and $158 billion this year, according to UBS Warburg.

For 2004, UBS Warburg raised its growth estimates for global wireline capex from 1% to 3%. The firm also raised its 2004 global wireline/wireless capex expectations from a 1% decline to flat growth from 2003. 

In the U.S., UBS Warburg expects 5% growth in 2004 for wireline/wireless capex.

Spending in Europe and Asia continues to decline, although at a slower pace than in North America, according to the firm. There is additional downside to capex estimates in Asia and Europe as a number of carriers struggle with enormous debt loads and the impact of wireless substitution on their top lines, UBS Warburg states.

What does all this mean for equipment vendors? The firm expects modest recovery in the second half of this year and in 2004 due to a few factors: capex bottoming in the first half of 2003; better-than-expected cost cutting by equipment companies; and fourth-quarter 2002 earnings that are in line or better than expectations.

Also, the prospects of the Federal Communications Commission revising its Unbundled Network Element-Platform (UNE-P) policy in the coming months could provide some upside to ILEC capex, according to UBS Warburg. Currently, UNE-P forces RBOCs to lease their facilities to competitors at below cost, which, the RBOCs claim, eats into their profits and capex budgets.

But while UNE-P relief may modestly increase capex, the firm believes that dramatic changes in UNE-P rules will take longer than industry watchers expect. SBC may be an exception to this, however, UBS Warburg notes. The RBOC could raise its 2003 capex budget from $5 billion to $6 billion if there is “meaningful” UNE-P relief, the firm states.