#4 – Infrastructure vendors’ market shares stabilize and price pressure eases
Infrastructure vendors’ have had challenging years where profit margins have been squeezed and market shares redistributed as the 4G roll out swept across the world. For the coming years we see the bulk of network investments taking place in existing installation upgrades rather than new roll outs. We also believe that operators are keen to maintain a power balance between the top three global vendors. This will lead to a stabilization of market share and will ease the price pressure for infrastructure vendors. Operators will need to look for OPEX and CAPEX reductions elsewhere.
Operator margins have been partly protected by vendor price pressure over the last few years. It has been a successful strategy for the operators, while vendor companies like Ericsson and Nokia have seen their margins tightly squeezed in the struggle to defend their market share from Huawei.1
It’s tempting for operators to continue to push vendor price pressure as the easiest short-term solution for meeting end of year financial targets. However, with lower wireless investments for 2017 and several vendors struggling to keep profitability, operators need to consider the long-term power balance. In the long run, increased price pressure will further force the infrastructure vendors to consolidate and thus create an unbalanced and unfavorable market for operators. It’s in the operators’ best interest to maintain at least three global vendors to secure long term competition and technology development.2
The peak of 4G network roll out has passed as networks are becoming more mature, and 5G is still several years away from contributing significantly to sales. This means fewer large scale rollouts in the near future and the bulk of investments coming from upgrades. As a consequence, there will be no be major rollout initiatives to make vendors fight for their market share.
Nevertheless, this does not change the challenges that operators face to be more efficient. Operators need to transform and make “smart” choices rather than primarily going for the lowest price. Northstream predicts that infrastructure vendors have seen the peak of price pressure for this period as operators become aware of the necessity to look beyond procurement initiatives to find OPEX and CAPEX savings.