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* Gartner predicts 2.3 pct rise in spending after 6.6 pctfall in 2012
* Companies in U.S., Asia, Brazil to lead on spending,Europe stalled
* Second wave of 4G mobile network investments begins
* Equipment makers Ericsson, Huawei seen remaining ahead ofpack
* NSN much improved after restructuring, Alcatel struggling
By Leila Abboud
PARIS, Jan 23 (Reuters) - Telecom network operators areexpected to increase their spending on equipment this year,giving a boost to vendors like Ericsson andAlcatel-Lucent after economic weakness caused a sharpmarket contraction in 2012.
Industry executives and market researchers give varyingforecasts for the size of the jump ahead, but all expectequipment demand in the United Stattes, Brazil, and China tofuel growth as operators step up their investments in fasterfourth generation (4G) wireless broadband networks.
Europe is expected to stagnate again this year after thedebt crisis and economic woes caused operators to sharply cutnetwork spending last year. Although groups like Vodafone and France Telecom are building 4G networks,they are more cautious than U.S. counterparts such as Verizon and AT&T because of fears that the extra investmentwon't pay off in Europe where mobile prices are lower.
The trends have led market research group Gartner to predict sales of network equipment to carriers to rise 2.3 percent to$79 billion in 2013, after falling 6.6 percent to $77.3 billionlast year. North America and Latin America will grow by 4percent, while Asia excluding Japan will be up 3.6 percent.
Infonetics Research is far more bullish - forecasting up to13 percent growth this year after a flat 2012 - because analystStephane Teral expects to see significant catch-up spending byoperators who delayed network investments last year.
Huawei Technologies, the second-biggest equipmentvendor by sales after Ericsson but effectively shut out of theU.S. over security concerns, said the overall network equipmentmarket will grow by 5 percent this year.
Other vendors may give their own predictions when theyreport annual results, with Nokia Siemens Networks (NSN) due to report on Jan. 24, Ericsson on Jan. 31and Alcatel-Lucent on Feb. 7.
"The trend of telecom operators being prudent about theiroverall capex envelopes is here to stay. I don't think the majorequipment vendors will get a lot of relief in terms of top-linegrowth this year," said Deborah Kish, analyst at Gartner.
"Where the carriers need the most help is designing andintegrating their increasingly complex networks and minimisingoutages from mobile traffic peaks. That often requires softwaresolutions and technical advice, not only the hardware the bigfive vendors are used to selling."
Ericsson, NSN, and Alcatel-Lucent do make software andmanage operators' networks via outsourcing contracts, but arenot always at ease in providing a consulting role compared withnew competitors like IBM and Wipro.
PRICE PRESSURES
Network operators globally are currently in a multi-yearinvestment cycle to upgrade mobile networks to 4G technology,known as LTE, which offers up to 10 times faster downloadspeeds. With data traffic from video downloads and on-the-go websurfers clogging up telecoms networks, operators also need tospend to avoid outages and improve customer service.
Yet the smartphone and tablet boom, which has lifted profitsat companies like Apple and Google, has notyet proven to be such a boom for the groups that actually makethe equipment for the networks.
Brutal competition for contracts, often sparked by low-costChinese players Huawei and ZTE, has caused severalyears of price deflation and eroding margins.
Some price pressure has eased because Huawei has largelystopped competing on price in contract bids because it no longerneeds to gain share at the expense of margins. But industryexecutives say challengers like ZTE and Samsung still lower prices to win initial contracts.
Ericsson and NSN have also at times undercut on price tokeep key customers, according to industry sources, acceptinglower margins on 3G network modernisation contracts in Europe.
As a result Ericsson's operating margin had nearly halvedfrom six years ago to just 10 percent for the first nine monthsof 2012, while Alcatel-Lucent hasn't been able to return tosteady profitability since it was formed from a transatlantic merger in 2006.
Meanwhile Huawei's overall operating profit margin went from7 percent in 2006 to 15-16 percent in 2009-2010 before slippingto 9 percent in 2011, the last year for which figures areavailable. The privately owned group does not detail profits forits network gear business.
But the fundamental pressures on equipment vendors are notexpected to change significantly this year, according toanalysts and industry executives.
"It's highly unlikely that there will be a significantchange in 2013 market trends from 2012," Alcatel-Lucent's chiefexecutive Ben Verwaayen said last month.
To reverse two quarters of losses last year Alcatel-Lucent,which is in fourth place in terms of market share for mobilenetworks equipment with a strong presence in the lucrative U.S.market, is cutting 1.25 billion euros in costs and raising debt.
However, NSN has emerged stronger from last year, helped bya major restructuring which aims to shed units unrelated to thecore mobile broadband business and cut 17,000 jobs to save $1.34billion by the end of 2013. It posted an operating profit in thelast three quarters.
"I strongly believe NSN is in as number two or three (inindustry rankings) depending on how market dynamics affect thecoming quarters," said Teral.
