If you’re a telecom equipment vendor, 2011 should be a banner year unless you’re selling rotary dial phones. And if you’re a service provider, you’ll need that increased revenue from wireless data and broadband-enabled services to build up your network infrastructure to handle the wild traffic growth from wireless data and video content.
Taking the pulse of telecom market growth, the Telecommunications Industry Association (TIA) projects that 2011 may be the biggest year ever in communications spending, topping all pre-recession figures, according to its mammoth 2011 telecom market review and forecast. I listened to Wilkofsky-Gruen Associates economist Arthur Gruen (who inspires a Walter Cronkite-esque confidence) discuss telecom industry trends addressed in the TIA report via Skype on a TIA webcast.
Gruen should know. He has written the TIA report for the past 15 years, and projects $4.34 trillion (with a “t”) in global telecom spending (equipment and services) this year, a number he expects to climb to $5.31 trillion in 2014 -- which translates to a compound annual growth rate (CAGR) of 6.9% over the next four years.
TIA’s 474-page annual in-depth analysis of the global telecom market isn’t filled with shockers, unless you expected last-gen wireline voice services to make a comeback. Still it’s good to see numbers that provide a welcome antidote to the global recession of the past few years.
Of course not every segment of every global and U.S. market is on an all-out growth path. There are continuing declines in wireline voice, an increasingly saturated wireless market, slowing broadband subscription growth and falling legacy equipment sales. “Increases hide a lot of things,” Gruen said. “There are some rapidly growing areas, but spending on landline is still a big segment of the market, for example, and it is declining.”
What’s driving the telecom market growth bus?
Not surprisingly, international wireless and broadband are telecom’s main drivers, and both are putting a strain on network infrastructure, which is causing operators to increase their network investments, Gruen said. The bandwidth glut of a decade ago caused the last enormous telecom downturn that arrived complete with dire predictions that there was enough infrastructure and capacity to last until the end of time -- or close to that anyway. Almost everybody lost money and jobs, and if you lived through it, you remember the photos of abandoned spools of untrenched fiber.
Now with wireless and broadband Internet growth, and cloud computing services moving up the stack, poof, no more bandwidth glut. The telecom industry can largely thank the consumer market for its interest in online video, social media, smartphones and the desire for constant connectivity for the growth.
On the enterprise side, even the early uptake in cloud computing services is straining existing networks, Gruen said, adding that the new TIA report includes cloud computing as a market segment for the first time. Cloud services will cut into premises-based equipment growth, but will become the fastest-growing component of the enterprise equipment market over the next four years.
U.S. telecom market: It’s raining data drivers
According to the TIA report, the U.S. was affected by the recession more than most other regions in 2009, with an 8.2% decline in telecom spending compared to a 1.6% decline globally. The 2010 turnaround in the U.S. was due to spending on equipment and services in support of equipment.
The key U.S. driver will be either acquiring data or accommodating data traffic. For example, spending on wireless data will nearly double over the next four years, according to TIA, from $54 billion in 2010 to $107 billion in 2014. Operators are expected to increase spending on wireless infrastructure and network backbones by almost 19% in 2011 to $38.8 billion and follow that by spending more than $40 billion annually from 2012-2014.
Telecom service providers often issue dire warnings about the need for increased revenue so they can continue to invest in their networks (that’s a popular one on the lobbying front). Oddly, despite the “sky is falling” messages, spending on telecom services grew faster than equipment and support services in 2010. And the services commanding double-digit growth potential include IPTV, cloud computing and Web conferencing, all of which use broadband platforms.
U.S. broadband subscriber saturation. The fixed broadband market in the U.S. will grow from $86.6 million in 2010 to almost $117 million by 2014, with subscribers growing more slowly, from 30 million to 33 million during that time. Gruen pointed out that this is a sign of a saturated rather than stagnant market. There’s more room for growth in rural markets than in urban U.S. markets, according to the report. The government’s broadband stimulus package kicked in only in 2010 and the money hasn’t been fully allocated, Gruen said.
The U.S. is the second largest broadband market in the world (with China as No. 1), but it ranks 18th in terms of broadband penetration, far below European countries, where the economics of broadband are generally better than in the U.S. with its rural market, and where there is government support in many cases.
U.S. wireless market scheduled for 99% penetration. The U.S. wireless market is also approaching saturation, according to Gruen. The 293 million wireless users in the U.S. in 2010 reflected a market penetration of more than 94%, and the report projects 99% penetration (322 million subscribers) by 2014. Still, wireless will be driving a data-centric rather than voice-centric market rather, so wireless data use will continue to grow.
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