Report: Telecom equipment spending is reason for optimism

Spending in the telecom sector rose in 2003, and that could be the beginning of a recovery, according to the Telecommunications Industry Association (TIA).

Spending in the telecom sector rose in 2003, and that could be the beginning of a recovery, according to the Telecommunications Industry Association (TIA).

Total spending in the U.S. telecommunications industry rose 4.7% last year to an estimated $720.5 billion, according to the TIA's 2004 Telecommunications Market Review and Forecast. The report predicts that the U.S. telecommunications industry will grow at a 9.2% compound annual rate between now and 2007, reaching $1 trillion.

It also predicts that a turnaround is in sight for U.S. telecommunications equipment spending. The network equipment market bottomed out last year at $14 billion. But Matthew Flanigan, president of the Arlington, VA-based TIA ( says a 2.3% increase to $14.4 billion is predicted for this year. He says this could have a snowball effect.

"If we can get more companies out there to buy more equipment, one fuels the other, and we will see recovery start to take place," says Flanigan. Service providers, he adds, are looking to Voice over Internet Protocol (VoIP), bundled services and data transport to create additional revenue. All of this will require investment in equipment. The report predicts that by the end of the next three years, network equipment spending will total $18.5 billion, climbing at a 7.0% compound annual rate from 2003.

The report also shows dramatic, double-digit increases in wireless services, services in support of equipment and specialized services have offset decreases in equipment spending and local- and toll-service revenues, according to the report.

The U.S. wireless market consists of transport services, handsets, infrastructure including Wireless Fidelity (Wi-Fi) equipment and professional services in support of the wireless infrastructure. Spending last year totaled $134.5 billion, up 7.9% from the previous year. The 2003 performance represents the first single-digit gain in the wireless market following years of double-digit growth, indicating that the market is approaching maturity.

The report also notes that broadband services are gaining traction. Flanigan expects these services to grow at low, double-digit figures in the next five years.

Spending on high-speed Internet access services (including cable modems, digital subscriber line, fixed wireless, satellite and fiber-to-the-home) reached $13 billion in 2003 and the TIA expects growth to $25 billion by 2007.

Flanigan says companies are now installing their own enterprise equipment and putting high-speed links between their offices, which is why the enterprise equipment market expanded 3.9% to $94 billion last year. In the enterprise, the shift to IP is boosting most segments of equipment spending. For instance, after declining in the previous three years, the PBX market bounced back in 2003 with a 12.0% increase, reaching $4.2 billion on the strength of growing IP-PBX sales. Videoconferencing was the fastest growing segment, jumping 28.6% and reaching $900 million.

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