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Telecom revenue will grow despite recession, study says

Projections vary widely about whether the telecommunications industry will continue solid growth despite the global recession. Wireless is in a strong growth position, but service providers face challenges over how to make more money from their network services.

Telecommunications have become a necessity these days -- on a par with roads and bridges, according to Robert Rosenberg,...

president of Insight Research. This is one of the many reasons why, in the midst of widespread economic turmoil, global telecommunications revenue is projected to increase from roughly $1.7 trillion in 2008 to more than $2.7 trillion in 2013, according to a study conducted by Boonton, N.J.-based Insight Research.

We have reached a point, globally, where telecommunications are no longer a discretionary expenditure.
Robert Rosenberg
PresidentInsight Research

"We have reached a point, globally, where telecommunications are no longer a discretionary expenditure," Rosenberg said.

"Despite the current economic climate, there is a pent-up demand for telecommunications services in certain markets," he said. "Areas such as Latin America and Asia Pacific will be boom markets in the upcoming years."

More specifically, the report states that the Asia-Pacific region will experience the highest growth rate in the next five years, at nearly 16%. Leading the charge will be densely populated countries, such as China and India, which have plenty of potential customers. Meanwhile, the telecom sector in Latin America and the Caribbean will grow by 12%, fueled by emerging economies and the expansion of the middle class.

Telecommunications analyst Jeff Kagan is also optimistic about the industry's future. "The telecom sector is holding strong," he said. "Think about it: Telephone, wireless, Internet, television – we use that stuff every day. I don't see it slowing down either."

Kagan conceded that telecommunications providers are likely to take a hit from economic pressures in the short term. But there will be major growth in some areas, such as wireless, he said.

According to the Insight report, wireless revenues will jump from 60% of all telecommunications services in 2008 to 72% in 2013, which amounts to a 14.4% compound annual growth rate. "The competition is hotter than ever in the wireless business," Kagan said, "and it's going to continue to heat up as time goes on."

Telecom not without clouds on horizon

Not everyone is sold on a bright future for telecom providers, however -- at least in the short term. Tom Nolle – founder and president of CIMI Corp., a consulting and analyst firm in the telecommunications, media and technology sector – does not see major growth for the industry in the years ahead.

"Obviously, service providers are going to spend money in areas that will generate revenue," Nolle said. "However, there are caps on all the revenue sources, so providers are only going to spend money relative to where they are to each cap."

Nolle's position is that telecom providers have a lot of challenges ahead, most notably the monetization of network traffic. With the price of each bit of data plummeting, it's not profitable to maintain a network. "And it never will be," he said.

To combat this problem, Kagan noted, more telecoms are offering bundled services to generate more revenue from existing customers. In the future, as a result of intense competition, telecom service providers will see a smaller subscriber base, he said, but one that will spend more money because of bundled offerings.

Ultimately, the outlook for the telecommunications industry depends on whom you ask. Rosenberg and Kagan believe that the industry will enjoy a strong and healthy future, despite the recent economic troubles. "After all, this is how we communicate and stay in touch," Kagan said. "Customers may scale back on some premium services, but the industry will be just fine."

Nolle is a bit more cautious in his predictions. "I know some people and reports are very optimistic," he said, "but I think they are minimizing the real challenges that the industry is facing."

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