TIA | PulseOnline February 2004, Letter from the President: <i>TIA's Market Review and Forecast</i> Predicts Turnaround In Sight for U.S. Telecom Industry

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Telecommunications Industry Association (TIA)

February 2004

Volume 5, Issue 4

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Letter from the President

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TIA's Market Review and Forecast Predicts Turnaround In Sight for U.S. Telecom Industry

We recently released TIA's 2004 Telecommunications Market Review and Forecast, an annual study which provides an overview of telecom's interrelated segments.

The report projects that a turnaround is in sight for U.S. telecom industry. We predict the market will grow at a nearly 9.2 percent compound annual growth rate (CAGR) from 2004-2007 to reach almost $1 trillion. When combined with the nearly $2 trillion that will be spent by other regions of the world by 2007, we are confident about where the industry is headed. These stats are welcome news for TIA, because they indicate that our members' customers should be spending money again.

We believe that one of the factors that will continue to drive higher spending levels in the near future is broadband. Spending on broadband equipment and services has been relatively strong in the last year, reaching almost $13 billion in 2003, up 41 percent over 2002. This figure is expected to nearly double by 2007. Improvements in the overall U.S. economy, combined with recent regulatory and policy changes, are driving this growth. Most notably, the FCC's Triennial Review Report and Order released last August was a big victory for TIA and its members. We believe that the beneficiaries of this decision, such as incumbent local exchange carriers, will fulfill their promise to build more broadband networks.

New "triple play" networks are necessary as service providers are looking to voice over Internet protocol (VoIP), bundled services, data transport and TV to generate additional revenue, which will require new investment in equipment. By 2007, network equipment spending will total $18.5 billion, climbing at a 7.0 percent compound annual rate from 2003. We believe the network equipment market bottomed out in 2003 at $14.1 billion.

Unlike the network side, the enterprise equipment market has grown over the past few years. The enterprise equipment market expanded 3.9 percent to $94 billion in 2003. 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 percent increase, reaching $4.2 billion on the strength of growing IP-PBX sales. Videoconferencing was the fastest-growing segment, jumping 28.6 percent and reaching $900 million.

TIA's Market Review and Forecast also highlights the transformation taking place on the services side of the market. Spending on transport services was essentially flat in 2003 at $285 billion. Local exchange revenues went down 2.9 percent to $118 billion following a 3.3 percent decrease in 2002. Toll-service spending fell 8.2 percent to $78 billion, its third consecutive decrease as the shift from wireline to wireless in long-distance traffic continued. Offsetting these declines in 2003 was a 14.3 percent increase in wireless services to $89 billion, surpassing toll services for the first time. The services market is undergoing a transformation as more consumers are relying exclusively on wireless, VoIP is growing and the distinction between local and long-distance is disappearing for both wireless and wireline.

Wireless trends are detailed in TIA’s Market Review and Forecast, and our article in this issue provides wireless highlights. The international market, predicted to total an estimated $1.5 trillion in 2004, is also featured in the report. The international market will grow faster than the U.S. market, reaching $2 trillion in 2007.

TIA’s Market Review and Forecast is a valuable tool for members and others to use as they plan marketing budgets, R&D efforts and business development initiatives. If you aren't familiar with it, please visit http://www.tiaonline.org/media/mrf.cfm for the table of contents. If you are a purchaser, we're always looking for ways to improve it. Please contact Monique Milligan at (703) 907-7471, email mmilligan@tiaonline.org with your comments.

Also see "U.S. Wireless Market to Reach $190.8 Billion by 2007" in this issue of PulseOnline.

February 2004

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