Enterprise spending will drive telecommunications market growth in 2002, according to recent findings from the Telecommunications Industry Association (www.tiaonline.org).
This news comes despite continuous problematic growth in some sectors, such as network equipment sales and the glut of dark fiber. "The short-term problems are vexing, but nevertheless, we believe that this market is a growth market," says Arthur Gruen, a principal author of the TIA's study.
"The underlying strength is good, it's just that other sections aren't doing very well."
Those are the findings of the TIA's 2002 Telecommunications Market Review and Forecast. TIA representatives say the purpose of the study is to help the industry stay focused on where areas of growth are.
The report states that the growth outlook through 2005 is for the telecommunications industry in the U.S. to increase at a projected 9.5% compound annual rate, rising to $954 billion. The overall international telecommunications market is expected to expand at an 11.9% annual rate, reaching $1.8 trillion in 2005.
"In general, telecom is growing," says TIA President Matthew Flanigan. "It's necessary for everything we do for business, and getting more important."
The report states that the U.S. telecommunications market for equipment and services grew by 7.2% in 2001, generating revenues of $663 billion. Spending on telecom equipment and software totaled $167 billion in 2001, down 2.8% from 2000. Spending on transport services rose 6.5% to $303 billion in 2001, led by a 23.2% increase in wireless services.
But while Flanigan says it is true that telecom spending was down in 2001, he nevertheless describes the remainder of this year as bearing good news. "It will turn around and change, but it will be the later part of this year or 2003," Flanigan says. "We expect double-digit growth in 2003."
The report states that spending on network equipment and facilities fell by an estimated 13.8% to $41 billion in 2001. An additional 10.8% drop is expected in 2002, with the market expected to stabilize in 2003. By 2004 and 2005, growth is expected to return to high single-digit and double-digit rates. For the 2001-2005 period, the network equipment and facilities market is projected to expand at a 3% compound annual rate, rising to $46 billion in 2005.
David Wilkofsky, another of the study's primary authors, points out that growth is being seen in wireless, videoconferencing, and support services. A drop in capital spending is expected in 2002, reflecting the fact that the infrastructure for these new services is established. But beginning in 2003, resurgence in capital spending is anticipated at growth rates in excess of 20% per year as research and implementation of 3G broadband wireless technologies is expected to attract resources.
Wilkofsky acknowledges that all of these predictions for growth come when some analysts say the industry is experiencing a "perfect storm." Faltering growth prospects have forced investors and banks to steer clear of the telecom companies, and overcapacity still plagues the industry.
"Whether or not this is a perfect storm, we don't know," says Wilkofsky. "But a confluence of factors caused the problems."
Wilkofsky says it is true that there is a lot of telecommunications capacity that is not being used. One example is the millions of miles of dark optical fiber. But he says this will change by 2004 as enterprise end users seek more optical fiber to cover the last mile of installation. "We are looking at decreases (in demand) through 2003, but then bouncing back by 2004 and 2005," says Wilkofsky.
"There is a lot of capacity out there that we don't need at the moment. The capacity is in excess of the current demand," Wilkofsky says. "But the current demand will increase rapidly, and once the demand catches up to supply, we will reach equilibrium."
Growth Outlook Through 2005
- The outlook through 2005 is for the telecommunications industry in the U.S. to increase at a projected 9.5% compound annual rate, rising to $954 billion.
- The overall international telecommunications market is expected to expand at an 11.9% annual rate, reaching $1.8 trillion in 2005.
- Capital expenditures by wireless carriers on infrastructure, research and development and licenses rose by 6.2% to $19.5 billion in 2001.