By Leila Abboud and Olof Swahnberg
PARIS/STOCKHOLM, Jan 26 (Reuters) - Europe's telecomsequipment makers look set for an unpredictable year because ofconsolidation among their operator customers and a slowdown ofbuildouts of faster mobile networks, known as 4G, in the UnitedStates and China.
Nevertheless, overall spending on mobile and fixed networksis expected to grow for a second consecutive year, as operatorsworldwide seek to improve coverage and add capacity to keep upwith rising data traffic from video and smartphones.
While construction of 4G networks is largely complete in theUnited States, Japan and Korea, the technology is just arrivingin much of eastern Europe, Latin America and Africa.
Market research firm Gartner predicts operators' spending onmobile infrastructure, including traditional radio base stationsand newer gear like small cells, will increase 8 percent thisyear to hit $43.36 billion.
Investment in fixed networks is set to rise 7.7 percent to$10.33 billion, driven by fibre broadband rollouts, it said.
"The 4G story is spreading after the first spurt of rolloutsin the U.S., Japan and Korea is behind us," Deborah Kish, ananalyst at Garner, said. "Telcos in more far-flung places fromHonduras to Croatia are looking to introduce more advancedservices and move prepaid customers on to contracts."
Analysts at brokerage Bernstein Research meanwhile predictwireless equipment spending will rise 5 percent, though fixednetwork equipment will be largely flat.
In a rare development, Europe looks set to be a growthdriver for telecom gear companies this year, with leader inmobile gear Ericsson, as well as number two China'sHuawei and number three Nokia set to benefit from anyuptick in spending.
DEAL FRENZY
Vodafone's 7 billion pound investment push dubbed"Project Spring" to improve its networks, part of an explicitplan to put pressure on rival operators, could spur the likes ofDeutsche Telekom and Telefonica to up theirown capital spending to avoid being left behind.
Vodafone Chief Executive Vittorio Colao has said thegroup's big competitors were likely to increase networkinvestments. "With the advent of 4G mobile, there is a windowfor number one or two players in each market to spring ahead andput more space between us and smaller players," he said.
Clouding the picture in Europe is a deal-making frenzy inwhich Britain's broadband leader BT Group is in talks tobuy mobile leader EE; Hutchison Whampoa Ltd has agreedto buy Telefonica's British mobile unit O2 for up to10.25 billion pounds ($15.4 billion); while Altice isbuying Portugal Telecom.
Such deals often lead operators to review contracts withequipment vendors as they merge their networks, so spending canbe slowed or put on hold.
Meanwhile Alcatel, more exposed to the UnitedStates than rivals with about a third of sales coming fromthere, will have to cope with planned cutbacks at AT&T andVerizon, since both have finished building 4G networks.But the Franco-American group will get a boost to revenue fromthe weakening euro, which may prove a boon to Chief ExecutiveMichel Combes in the last year of a turnaround plan.
Alcatel will also benefit from its strong portfolio of IProuters and optical products, analysts said, which operatorsneed to strengthen networks' ability to carry heavy datatraffic. Huawei and Cisco Systems Inc are also strongin those areas.
India is also set to be a bright spot with up to 5 percentgrowth, analysts say, with carriers expected to invest in bothvoice and data networks after regulatory uncertainty on mobilelicences lifts. Activity in India's sector had ground to a nearhalt in recent years because of a government corruption probe onthe award of mobile licences.
"India has been way behind normal investments for a longtime, so there is a very significant pent-up demand," said PerLindberg, analyst at ABG Sundal Collier.
Ericsson will report 2014 results on Tuesday and Nokia onThursday. Alcatel-Lucent's results are on Feb. 6. ($1 = 0.6663 pounds) (Additional reporting by Jussi Rosendahl; Editing by DavidHolmes)
Vodafone (VOD)
