Telco Infrastructure Spending Hits A Wall As Hyperscalers Soar

‘Telcos remain locked in a low-to-no growth world and their capex reflects that,’ says John Dinsdale, of Synergy Research Group, as global capex IT infrastructure spending reaches over $300 billion in the first half of 2021.

Telecommunication providers are getting left in the dust by hyperscale providers like AWS, Google and Microsoft in terms of data center capex spending growth on IT infrastructure.

The world’s largest telecommunication companies, also known as telcos, have not increased their capex spending on IT infrastructure, such as servers and networking hardware, over the past five years. Comparatively, capex spending by hyperscale data center operators like AWS, Microsoft and Google continues to soar to new heights, according to new data from market research firm Synergy Research Group.

“There is an increasingly sharp contrast in spending patterns across the three main industry sectors,” said John Dinsdale, a chief analyst at Synergy Research Group in an email to CRN. “Telcos remain locked in a low-to-no growth world and their capex reflects that. While there were big hopes for 5G, it has proven to be a case of changing the mix of investments within relatively fixed budgets, rather than substantially growing overall telco spend. That picture is unlikely to change too much over the next few years.”

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In the first half of 2021, telcos, enterprises and hyperscalers spent a whopping $307 billion on IT infrastructure, up 9 percent compared to the first half of 2020, according to Synergy.

Breaking down the three groups: the fastest growing IT infrastructure spenders are hyperscalers, which spent $83 billion in the first half of 2021, up a whopping 30 percent year over year. Hyperscalers accounted for 27 percent of the global IT infrastructure capex spend market, up from just 13 percent in the first half of 2016.

Meanwhile, telcos capex spending on IT infrastructure continues to show flat growth, hovering around $135 billion in the first half of the year. Telco market share of global IT infrastructure spending has fallen from 56 percent share in the first half of 2016 to 44 percent share in the first half of 2021.

Dinsdale said sales from the 19 largest hyperscale operators—including the likes of Apple, Amazon, Facebook, Google and Microsoft—are typically growing by more than 30 percent annually, which has required them to grow their spending at a similar rate.

“Those growth rates will moderate a bit over the coming years but will be viewed jealously by the telco world,” said Dinsdale.

Regarding the enterprise capex infrastructure market, enterprises spent $89 billion in the first half of 2021, representing a year over year growth rate of 6 percent.

“The enterprise picture is more complex with cloud, big data and increasingly sophisticated collaboration requirements driving a multitude of changes in their IT operations,” Dinsdale said. “We should continue to see modest growth in their infrastructure spending.”

The largest hyperscale IT infrastructure spenders in the first half of 2021 were Amazon, Microsoft, Google, Facebook, Apple, Alibaba and ByteDance, according to Synergy Research Group. The biggest telcos spenders, which includes both fixed and mobile operations, were China Mobile, Deutsche Telekom, NTT, Verizon, AT&T, Vodafone and Orange in the first half of the year.