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Christmas has come early for the big telecom equipment makers. Shares in Sweden's Ericsson have risen 17 per cent since mid-November. That was when AT&T announced plans to increase capital spending on its wireless and landline networks to $22-billion (U.S.) in each of the next three years – so an incremental $10-billion increase in total. In the same period, Alcatel-Lucent's beleaguered stock has gained 35 per cent. Here, the added driver has been a €1.6-billion ($2.1-billion) financing package underwritten by Credit Suisse and Goldman Sachs and partly secured on the company's patent portfolio.

The question for investors is whether such market festivity is fully merited – or whether, when the cold light of 2013 dawns, prospects will look rather less twinkly. It is true that capital spending in the U.S. mobile sector has taken a turn for the better. AT&T's capex boost has been echoed by a 2013 upward revision at T-Mobile, for example. But this needs to be weighed against likely spending declines in Japan in 2013, and no indications to date that Europe's big operators, facing a revenue squeeze, plan material capex increases next year. Spending plans in China, meanwhile, are hazy: analysts at Fitch expect the industry's capex figure to be in line with 2012's but they warn that this could be threatened if margins and cash flow get squeezed.

In short, operator investment overall may show little improvement from 2012 levels; Barclays, for one, expects it to be flat. Competitive pressures, meanwhile, are unlikely to abate. Huawei has security-related issues in the U.S., but, like fellow Chinese manufacturer ZTE, shows no sign of retreating in Europe. Ericsson now trades on an enterprise value to 2013 earnings multiple of six. And while Alcatel has secured more financial flexibility, its 6- to 9-per-cent operating margin target for 2015 remains a challenge. Both stocks look high enough for now.

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