Eyeballing telecom trends for 2002

By Lisa Pierce
Network World, 01/07/02

This week and next we'll run down what customers should look for from the U.S. telecom industry in the year ahead.

Prior to the general recession that began mid-2001, the industry was experiencing its own recession - one caused in great part by those on the supply side of the market: vendors, providers and financial backers.

The additional impact of the recession, coupled with the aftereffects of Sept. 11, will prolong the recovery of the telecom sector until very late 2002 at the earliest. However, certain select technologies will buck this trend. Although storm clouds will continue through much of next year, organizations that do their homework will find a silver lining: better value.

The recession and business slowdown post-Sept. 11 has and will continue to dampen consumer and business demand. This will be felt by the telecom industry throughout most of the year.

Decreased demand for provider services will reduce provider demand for new products. Provider capital expenditures for this year will be significantly lower than actual spending in 2001. For example, SoundView Technologies estimates that U.S. provider capital expenditures will decline between 26% and 30% year-to-year. For many makers of telecom products and components, this may make this year a more difficult fiscal year than 2001.

The after effects of Sept. 11 will continue to cause heightened provider and user interest in business continuity and remote site connectivity. Many individuals will continue to scrutinize the necessity of air travel, both for professional and personal trips.

This year will be the first full year of the detariffing of U.S. long-distance voice and data services. Detariffing of U.S. overseas voice and data services begins this year.

The 12 months ahead will hardly be a banner year for major telecom advances: Innovation will have modest technology components but instead will focus on improvements that go to the bottom line.

Users will look for better deals on price and will be reluctant to migrate to new services and products with payback periods of longer than a year until economic recovery is at hand. Customers will have great interest in services and products that can help them save money near-term (fewer than 12 months). Thus, there will be strong customer interest in metropolitan and long-haul Ethernet and wavelength services.

Providers will focus on augmenting their existing service portfolios - in particular, endeavoring to make virtual services more attractive on a price/performance basis.

The economic slowdown will delay many providers from significantly enhancing their domestic business-class voice-over-IP services until the second half of this year, for instance, by providing voice-specific service-level agreements on combination voice/data VPN services. This time frame is in line with expectations concerning the maturation of IP PBXs.

Truly new service introductions will be rare. New providers of local access and long-haul service will be virtually nonexistent. Like competitive local exchange carriers in 2000 and 2001, many small, independent Ethernet service providers will be forced to either expand their service portfolios or merge with other providers.

Next week: Cable providers, wireless services and more.