New Street Research is betting that operators will slow down deployments while spending the same amount on capital expenditure
"Prices will rise," Avi Greengart said of smartphones
Roy Chua worries about a possible recession
Analysts have plenty to say about how telecom operators in the United States will be impacted by the Trump administration’s tariffs, while so far, the companies have nothing to say about the global rearrangement of trade norms, and how that might affect their business.
Fierce reached out to AT&T, T-Mobile and Verizon for comment on the situation. AT&T and T-Mobile both declined to comment, Verizon had not responded to our questions by press time.
Unless you’ve spent the last few weeks stuck studying a remote tribe in the Amazon without access to TV, radio or any other forms of media, you’ll have heard the of the global trade tariffs the Trump administration laid out on April 2. A universal 10% tariff that is applied to all imports came into effect starting April 5. Higher country-specific tariffs will begin from April 9 for “about 90 nations”.
The tariffs will certainly affect our little corner of the market. From smartphone makers to telecom equipment vendors, and definitely the major U.S. mobile operators. So, let’s hear what analysts have to say about the situation.
Capex crunch?
One major question analysts have is how the tariffs could affect communication service providers (CSPs) capital expenditure (capex) plans as the price of telecom infrastructure rises.
“The question is whether they increase capex to accommodate the increase in costs, or spend the same amount and slow deployments. We are betting on the same spend but slower deployments,” Jonathan Chaplin, leader of the US communications services research team at New Street Research said in an email reply to Fierce’s questions.
“I don't think the tariffs will change the capex budgets directly or immediately for U.S. operators, but given that U.S. operators have a fixed capex budget, tariffs raising prices at least 10% for equipment will reduce their purchasing power,” Roy Chua, principal at AvidThink told us in an email. “Nokia and Ericsson may absorb some of the price increases for equipment not manufactured in the US or that have imported components, but they don't have that margin to play with in the first place so it limits their flexibility,” he added, echoing some of the thoughts about the Nordic twosome would handle the tariffs.
Smartphone scares and subsidies
Analysts are widely convinced that operators will do what they can to prevent customers from feeling the rising prices of smartphones from Apple, Samsung and others. “I do expect prices to rise,” said Avi Greengart, president of Techsponential. “However, carriers will not want to slow down phone purchases, which is their opportunity for pulling switchers from rivals and upselling existing subscribers to new plans. Therefore, I expect carriers will do whatever they can to blunt or hide the price increases, by extending the financing terms by a year, adding to subsidies and adjusting trade-in values,” he added in an email.
New Street Research's Chaplin thinks that consumer demand will recede as phones become more expensive for customers, despite operators carrying on with their heavy subsidies. “The carriers will offer the same subsidies — call is $1,000 per phone. There is no reason to lower it, But the phones are maybe $150-200 more expensive for end users, which means demand may recede,” he said.
Recession fears
AvidThink’s Chua thinks that U.S. operators will try to slow their expenditure while they try to figure out what is happening. “The increased risk of a U.S. and global recession and overall uncertainty in the market is more likely to freeze spending by the operators for the next 3-6 months while they evaluate the potential scenarios and fallout from this round of tariffs,” the analyst concluded.