Comeback

Spending in the 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% between 2004 and 2007, according to a Telecommunications Industry Association report.

Total spending in the U.S. telecom industry grew 4.7% in 2003, according to the TIA’s 2004 Telecommunications Market Review and Forecast. The study’s authors expect U.S. telecom industry spending to grow at a 9.2% compound annual rate between 2004 and 2007, from $720.5 billion in 2003 to $1 trillion in 2007, IDG News Service Correspondent Grant Gross reports.

TIA credited the rosy outlook for the telecom industry on an improving economy and an FCC decision from 2003 that should encourage telecom spending. The FCC’s Triennial Review Order, released in final form in August, will encourage the regional Bells to invest in their own DSL 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, group President Matthew Flanigan called on the U.S. government to turn around its declining spending on telecom R&D. Telecom companies have cut R&D spending during the recent slump, and R&D spending needs a boost so other nations do not catch up to the U.S. lead in telecom equipment and service quality, he said.

Total telecom spending in the U.S. grew 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, TIA officials say. Spending on broadband services in the telecom sector, including DSL, 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.

The study predicts the number of U.S. DSL subscribers to grow from 7.8 million in 2003 to 17.5 million in 2007.

Also expected to grow is spending on wireless communications, including services, phones and capital spending. The report estimates wireless spending in the U.S. will rise from $134.5 billion in 2003 to $190.8 billion in 2007. Wireless service revenues, not including wireless equipment and capital spending, passed U.S. spending on long-distance toll calling revenues in 2003 and should pass local telephone access revenues in 2007, the report projected.

While the report predicted growth in most telecom areas over the next four years, one area not expected to reach its 2000 high is spending on network equipment, the equipment used by telecom carriers. The study’s authors predicted modest growth from a bottomed-out $14.1 billion in spending in 2003 to $18.5 billion in 2007. U.S. spending on network equipment and facilities peaked at $51.9 billion in 2000.

International telecom spending, not including U.S. spending, is predicted to reach $1.5 trillion in 2004, up 10.3% from 2003. Overall international telecom spending is predicted to reach $2 trillion by 2007, growing at a compound rate of 10.5% between 2004 and 2007, according to the TIA study.