Researcher: Fiber-optic cable market returns to double-digit growth rates

May 10, 2006 - The worldwide report from KMI says China will account for almost 50 percent of demand from 2006 through 2010.

May 10th, 2006

The amount of fiber-optic cable installed worldwide jumped 15 percent in 2005 compared to 2004. North America led this surge with a 36 percent increase in installations, followed by Western Europe with a 22 percent increase. The annualized growth rate through 2010 will be 10 percent. These growth figures, based on kilometers of cabled fiber installed each year, are among the findings just published in the 2006 edition of "Worldwide Optical Fiber and Cable Markets," a report by KMI Research (www.kmiresearch.com). KMI is owned by PennWell, which also publishes Cabling Installation & Maintenance magazine and Cabling News.

Patrick Fay, KMI senior analyst and the report's principal author, said, "We saw 5 percent growth in 2004. That was welcome news after two years of declines, but the production levels achieved in 2005 and in the first quarter of 2006 have fiber and cable producers turning up unused capacity and will have them scrutinizing capacity requirements in the next few years."

Based on research into long-distance backbone projects, local access networks, and other applications, the KMI report says the fiber-optic cable market will average double-digit growth in unit quantities through the next five years. Within three years, the amount of fiber installed will surpass the peak level that was reached in 2001 when telecom and fiber-optic markets began to collapse.

Fay said the new report addresses key questions raised by this forecast. First, where is this growth occurring and what customers are driving it? Two countries—the United States and China—will account for almost 50 percent of demand from 2006 through 2010. In the U.S., Verizon is the most important contributor. Last year Verizon increased its installations of cabled fiber by more than 3 million kilometers and accounted for 40 percent of the U.S. market. China Mobile is another major customer, installing millions of fiber-kilometers in recent years to connect its switches together and to increase base-station density for 3G services.

Three operators, AT&T, China Mobile, and Verizon, accounted for 55 percent of the change in worldwide demand from 2004 to 2005 and will account for more than 20 percent of the growth this year. Local telecom operators in Western Europe also are ramping up larger regional, metropolitan, and fiber-in-the-loop projects. As a result, Western Europe will increase its share of the worldwide market from 16 percent in 2006 to 22 percent in 2010.

A second question is what's behind this growth; could the market be vulnerable to another sudden collapse? KMI concludes no, because the carriers are fundig the networks differently. During the telecom boom of 1997 to 2001, the massive investments in large-scale network projects were heavily funded by the capital markets. The near-term fiber-related investments in the local loop, however, are more closely tied to new broadband-service revenues, and the levels of carrier capital expenditures, as percentages of gross revenues, are more consistent with investment levels before the bubble.

Another question, Fay noted, is how much the growing demand will use up the industry's excess capacity. The report analyzes demand relative to capacity and concludes that optical fiber could be in tight supply unless new capacity is brought online between 2008 and 2010. One implication of this development, however, is that the recent trend of rapid fiber and cable price decreases will stop and even slightly reverse.

The KMI report analyzes the fiber and cable markets by country, region, application, producer, fiber type, price, and other segmentations, presenting forecasts in unit quantities and market value. The 2006 edition of this annual report was completed in March.

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