Report: Telecom industry about to rebound

IDG News Service |  Networking

Spending in the U.S. telecommunications industry is poised to take off after a three-year slump, with total spending in products and services expected to grow at a compound annual rate of almost 10 percent between 2004 and 2007, according to a report released by a telecom industry group Wednesday.

Total spending in the U.S. telecom industry grew 4.7 percent in 2003, according to estimates in the Telecommunications Industry Association's (TIA's) 2004 Telecommunications Market Review and Forecast. The report's authors expect U.S. telecom industry spending to grow at a 9.2 percent compound annual rate between 2004 and 2007, from US$720.5 billion in 2003 to $1 trillion in 2007.

"We're looking at the (growth) curve to start accelerating a bit," said study co-author Arthur Gruen of Wilkofsky Gruen Associates. "This is the beginning of a turnaround ... from the doldrum years."

TIA credited the rosy outlook for the U.S. telecom industry on an improving U.S. economy and a U.S. Federal Communications Commission (FCC) decision from 2003 that should encourage telecom spending. The FCC's triennial review, released in final form in August, will encourage the regional Bells to invest in their own DSL (Digital Subscriber Line) networks because the ruling said they no longer have to share DSL loops with competitors. The FCC decision, which allows a state-by-state review of the prices the Bells charge competitors for using parts of their networks, should also encourage other telephone providers to spend money on their own equipment, the TIA said.

While TIA "feels pretty good" about the direction of the telecom industry, the group's president Matthew Flanigan called on the U.S. government to turn around its declining spending on telecom research and development (R&D). Telecom companies have cut R&D spending during the recent slump, and R&D spending needs a boost so that other nations do not catch up to the U.S. lead in telecom equipment and service quality, he said.

"We've got to get it from the government; we've got to get it from Wall Street," he said of R&D spending. "We believe our country cannot sit idle as our trading partners out-fund and out-support our telecom industry."

Total telecom spending in the U.S. did grow between 1999 and 2003, even though the industry has been in a self-described slump. Total spending went from $560.6 billion in 1999 to $687.9 billion in 2002, according to the report.

Broadband adoption will drive some of the industry growth, Gruen said. Spending on broadband services in the telecom sector, including DSLs, was $13 billion in 2003 and is expected to grow to $25 billion by 2007, according to the study. Spending on DSL will surpass spending on cable modem services by 2006, the study predicted, with adoption of higher-cost business DSL driving up spending, although total DSL installations will continue to lag behind cable.

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