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February 23, 2006

Telecom Revenue to Grow an Average 9 Percent Annually Until 2009

Patrick Barnard, TMCnet Associate Editor


TMCnet Associate Editor

The U.S. telecommunications industry saw an 8.9 percent increase in overall growth last year and will continue to grow an average of 9 percent annually through 2009, according to a
report from the Telecommunications Industry Association released Wednesday.

According to TIA’s “Market Review and Forecast,” which is produced annually, the industry grew to an estimated $856.9 billion in 2005 and is expected to climb 10.2 percent in 2006, reaching $944.7 billion. Most of the growth is attributable to double-digit increases in network equipment, wireless devices, wireless services, services in support of equipment, Internet access, unified communications, videoconferencing public room services and Web conferencing. The report predicts that the industry will reach $1.2 trillion in 2009.

Outside of the U.S., international communications spending reached $1.8 trillion in 2005, up 11.4 percent over 2004, fueled by double-digit increases in wireless transport services, Internet access, public network equipment and professional services in support of public network and enterprise equipment. The Middle East and Africa saw the fastest growth in 2005, with an 18.4 percent advance to $66.7 billion. The report predicts that international telecommunications spending will reach $2.7 trillion in 2009, a growth rate of 10.4 percent.

Industry experts have said in recent news reports that the TIA report is indicative that the industry is rapidly gaining back what it lost during the telecom bust which occurred about 10 years ago.

“The statistics in our new report reveal the telecom industry is expanding once again,” said TIA President Matthew J. Flanigan, in a press release on TIA’s website. “The U.S. market is back on an upward path and the international markets are growing even faster. With revenues from international markets more than double that of the U.S., the global marketplace is clearly where companies must compete.”

The study breaks down the industry growth by segment. For example, the total U.S. equipment and software sector saw a 5.4 percent increase in 2005, reaching $165.7 billion. A principal driver of this growth was revenue from wireless devices. In 2005, wireless devices revenue reached $15 billion, a 22.6 percent increase over 2004.

Network equipment revenue grew 5.2 percent in 2005, driven mainly by investment in fiber optic networks. This is significant since that segment saw a 71percent decrease in growth between 2000 and 2003. The report explains that rising traffic in the network is fueling the demand for fiber. Although not regaining its prior high levels, fiber revenue in 2006 will climb to more than half that of 2000 and will be a catalyst for growth rather than for decline over the next four years.  Total revenue in the network equipment and facilities market is expected to reach $20.9 billion in 2006 and will reach $24.4 billion in 2009.

The U.S. enterprise equipment market expanded 6.9 percent to $98.3 billion in 2005, mainly due to the rapid adoption of convergent technologies (including video-conferencing and unified communications). To enable these convergent technologies, legacy equipment is rapidly being replaced with IP equipment and IP-based services. The growth is expected to continue this year, with spending on enterprise equipment expected to reach $104.5 billion, a 6.3 percent increase over 2005.

The report also addresses the rapid erosion of landline services due to the increasing popularity of wireless services. Landline revenue saw its fifth consecutive year of decline in 2005, while wireless continued to grow at double-digit rates. Total landline revenue in 2005 reached $192.3 billion, a 1.4 percent decrease over 2004, while wireless services reached $118.6 billion in 2005, a 14.8 percent increase over 2004. Similarly, the number of wireless subscriptions in 2005, 194.5 million, passed landline subscriptions, at 172.1 million, “and with approximately two-thirds of the U.S. population subscribing to a wireless service, the market still has room for expansion.”

“TIA expects wireless penetration to rise to 88 percent by 2009, which would translate into 270 million subscribers,” the report states. “Landline subscriptions will continue to fall, but the rate of decline will moderate as new services such as voice over Internet protocol (VoIP) and broadband video help landline carriers retain subscribers.

Spending on transport services in the United States increased 4.2 percent in 2005, reaching $310.8 billion.

The report also finds that the U.S. broadband market has grown explosively during the past five years, from 4.5 million high-speed Internet access subscribers in 2000 to 41.2 million in 2005. Internet access revenue rose 10.2 percent last year, fueled by rising broadband penetration.

“Broadband Internet access has become a central offering for carriers,” the report states. “Landline carriers and cable operators are competing with steep discounts and faster speeds, which is propelling the market and hastening the transition from dial-up to broadband. By 2009, nearly three-quarters of subscribers will access the Internet via broadband connection.”

According to the report, overall spending on Internet access services will increase 5.3 percent to an estimated $34.8 billion by 2009.

For more information about TIA, visit
http://www.tiaonline.org, or, to purchase a copy of the report, visit http://www.tiaonline.org/business/research/mrf/.

Patrick Barnard is Associate Editor for TMCnet and a columnist covering the telecom industry. To see more of his articles, please visit Patrick Barnard’s columnist page.

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