Total spending in the US telecommunications industry rose 7.9% in 2004 to an estimated $784.5 billion – a significant improvement from gains of 3.6% in 2003 and 1.9% in 2002 – according to the Telecommunications Industry Association’s 2005 Telecommunications Market Review and Forecast.
An increase in equipment and software revenue and double-digit increases in wireless services, services in support of equipment, and specialized services spurred this growth, offsetting decreases in landline services revenues.
The US telecommunications industry will grow at a projected 9.5% compound annual growth rate (CAGR) 2005-2008, reaching $1.1 trillion.
A 5.2% increase in total equipment and software revenue marked the first gain after three consecutive years of decline. From 2000-2003, equipment and software revenue fell $30.5 billion, a cumulative 17.4% decrease, led by the network equipment segment.
In 2004, the network equipment market began to emerge from its slump and recorded a 4.7% advance, reaching $15.8 billion. This reversal stems from the market’s evolution toward integrated full-service providers offering bundled services at flat rates. With fibre continuing to be the principal driver of growth in this market, network equipment revenue is expected to increase 9% in 2005 to reach $17.3 billion and achieve a 8.4 CAGR 2005-2008, reaching $22 billion in 2008.
The enterprise equipment market expanded 5.9% to $99 billion in 2004, more than the combined gain of the previous three years. In the enterprise market, replacement of legacy equipment and the shift to IP and convergent systems is boosting most segments of equipment spending. Total spending on enterprise equipment is expected to reach $105.6 billion in 2005, a 6.8% increase over 2004.
Spending on transport services increased slightly by 3.4% in 2004 reaching $298.7 billion. Local exchange revenues were essentially flat at $124 billion in 2004 but are expected to grow at faster rates in subsequent years as landline providers continue to introduce bundled services at flat rates and to offer VoIP – diminishing the price advantage enjoyed by wireless. The shift to VoIP will be the key driver in both enterprise and residential markets. The number of VoIP access lines jumped to 6.5 million in 2004 from 3.8 million in 2003 and is expected to expand rapidly, rising to an estimated 26 million by 2008.
Toll service spending fell 4.2% to $72.8 billion, its fourth consecutive annual decrease as the shift from wireline to wireless in long-distance traffic continued. Offsetting this decline in 2004 was a 14.6% increase in spending on wireless services, to $101.9 billion. Wireless services is one of the key market drivers and continues to gain traction as carriers introduce more data services such as online video games, high-speed third-generation (3G) wireless services, Wi-Fi technology and WiMAX. TIA expects wireless services revenue to increase at a 10.4 CAGR to $151.1 billion in 2008.
Internet access revenue rose 12.5%, fuelled by rising broadband penetration. Broadband subscribers increased from 5 million in 2001 to more than 32 million in 2004, and TIA expects broadband to surpass dial-up in 2005 and to reach nearly 57 million subscribers by 2008. Overall spending on Internet access services is predicted to increase at a 6.8 CAGR to an estimated $35.3 billion by 2008.
Total international telecommunications spending (not including US figures) reached $1.4 trillion in 2004, up 10.2% over 2003. The international telecommunications market is expected to grow faster than the US market, boosted by high growth in wireless services and broadband access. Overall international telecom spending is expected to reach $2 trillion in 2008, growing at a CAGR 10.6% 2005-08.
Broadband access is predicted to be the key driver of equipment spending in the international markets, tripling in the next four years and rising to $100.8 billion by 2008. Growing demand for broadband, along with the introduction of IP networks, the rollout of 3G and Wi-Fi services will boost the equipment market. International spending on telecommunications equipment is predicted to increase by 7.4% in 2005 to $256 billion and then to grow at high single-digit rates through 2008.