Report: Telecommunications investment will rise at high single-digit growth rates

May 5, 2003
May 5, 2003 - TIA forecast says uptick will begin this year.

Telecommunications investment by businesses and institutions will rise at high single-digit growth rates beginning this year, according to the 2003 Telecommunications Market Review and Forecast.

The forecast is published by the Telecommunications Industry Association (TIA). This uptick follows decreased or flat spending on enterprise voice and data equipment since 2001.

Although the most dramatic growth is found in some of the smaller emerging sectors such as collaborative technologies and high-speed Internet connectivity, the TIA notes that developed markets such as the PBX segment are once again supplying the growth necessary to strengthen the foundation of the industry.

Weakness in spending on equipment (with an overall growth rate of only 1.9% in 2002), particularly in the mature PBX, key telephone system and voice processing equipment markets, was attributed largely to the economic downturn, as companies cut back on postponable expenditures and delayed network upgrades. Demand for new equipment also decreased after the high spending levels in the late 1990s on Y2K preparations.

However, aggressive cost-cutting should enable enterprises to improve their financial performance with the improving economy, and demand for replacement equipment will become stronger as legacy systems begin to show signs of age.

PBX shipments are predicted to spike to 6.6 million PBX line shipments in 2003, up from 6.2 million in 2002, based on a number of factors. An increasing number of installed PBX systems are exceeding their life cycles, even as manufacturers shift their focus to new generations of products and spare part availability becomes an issue. Furthermore, IP and wireless PBXs will also boost shipments. IP PBX line shipments are expected to grow from 1 million in 2002 to 4 million in 2006 -- a 41.4% compound annual rate through 2006. Demand for IP systems is rising as the lure of better performance, increased capabilities and greater affordability of these systems lead to added investment. The PBX market, a $3.75 billion segment in 2002, will grow to $5 billion by 2006, according to the forecast.

"The last few years clearly have been a time of transition," says TIA President Matthew J. Flanigan. "But new applications and products supporting new business processes, coupled with improved economic conditions, should propel the market of voice and data equipment for the enterprise. IP is becoming more mainstream in communications platforms and call centers, and, for the most part, we have some good growth ahead of us in 2003 and 2004. The proliferation of businesses trying to manage Internet-based customer communications will create a significant opportunity for equipment and services sales."

With the increase in equipment purchases, the TIA predicts support spending will also increase at high single- and low double-digit rates of growth through 2006. Overall, services spending in support of voice and data communications equipment is projected to climb at a compound annual rate of 14.8% through 2006, reaching $331 billion. One of the chief causes of this support boom is that rapid technology advances are leading to more outsourcing for design, installation and maintenance of multi-vendor applications and systems.

Other findings in the 2003 Telecommunications Market Review and Forecast include:

* 4.8 million traditional PBX line shipments and 1.8 million IP PBX line shipments are expected in 2003, down 7.2% and up 80% from 2002, respectively. IP PBX shipments have more than doubled each year from 1999 through 2002,

* $4.2 billion in total PBX revenues are expected in 2003, up 12% from 2002. Total PBX spending is expected to grow at a 7.2% compound annual growth rate from 2003-2006, following three straight years of decline.


The TIA is based in Arlington, VA. For more information visit www.tiaonline.org.

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