Spending on network equipment is expected to rise 2.3% to $14.4 billion this year, followed by double-digit growth in 2005 reaching $16.4 billion, according to the Telecommunications Industry Association's 2004 Telecommunications Market Review and Forecast.
The report states that high single-digit increases are expected to follow in 2006, with a mid-single-digit advance in 2007. Spending will grow 7.0% at a compound annual growth rate through 2007, rising to $18.5 billion, according to the report.
The network equipment market has been one of the most volatile sectors in the telecom industry. The sector continued its three-year correction in 2003, declining 15.2% to $14.1 billion, a decrease that followed a 61.1% drop in 2002 and a 17.6% decrease in 2001. That decline offset an unsustainable run-up in the late 1990s, particularly in the optical fiber cable market, where deployment more than doubled between 1997 and 2000 (from 7.6 million miles to 19.6 million) before coming nearly to a complete halt in 2000.
Beginning this year, however, the report asserts that network equipment spending will begin to expand again, led by the regional Bell operating companies (RBOCs), though it will not recover to the levels of 1999 and 2000. RBOCs face an overall declining market and are looking for new revenue sources and will need to invest in equipment to support them.
The report also states that a significant investment in fiber will be needed for RBOC long-distance, data and television initiatives. To provide data services, RBOCs will need to upgrade their networks to be Internet protocol (IP)-capable; to deliver television programming, they will need to expand their optical fiber networks to the home. These upgrades have already begun, and in 2003, RBOCs recorded a modest increase in fiber deployment.
Incumbent local exchange carrier (ILEC) fiber deployment is projected to increase 26.2% this year and an additional 41.5% in 2005. In 2007, ILECs are expected to deploy 4.6 million miles of fiber, the highest of any year except 2000 and 2001. Total fiber deployment is expected to reach 7.4 million in 2007, a 12.0% CAGR from a low base.
"Over the next three years, we expect a reinvigorated network equipment market. For example, RBOC investment in fiber, migration to next-generation technologies, increased demand for high-speed DSL and rising wireless data traffic all will drive growth," says TIA President Matthew Flanigan. "One important underlying assumption to this increase is that the FCC's broadband deregulatory framework remains intact."
The TIA is based in Arlington, VA. For more information visit www.tiaonline.org.