February 16, 2006 Arlington, VA -- Total spending in the U.S. telecommunications industry rose 8.9% in 2005, topping $856 billion, according to the Telecommunications Industry Association's annual Telecommunications Market Review and Forecast. In a conference call held yesterday, Arthur Gruen, principal author of the report, noted that 2005 represented the second consecutive year of high single-digit growth. "2004 was not a fluke year," he said. "We are now in a period of sustained growth."
Overall spending is expected to increase 10.2% this year, for a total of $944.7 billion. TIA expects the industry to grow at a compound annual growth rate (CAGR) of 9% over the next four years, reaching $1.2 trillion by 2009.
According to Gruen, the landline network equipment market has posted a dramatic comeback. Following a precipitous 71% drop between 2000 and 2003, revenue has risen 31% over the past two years, due almost entirely to increases in fiber deployment. Although it will not regain its prior high levels, fiber revenue in 2006 will climb to more than half that of 2000 and will be a catalyst for growth rather than for decline over the next four years, Gruen noted.
Three or four years ago, the idea of an industry rebound led by fiber deployment would have raised more than a few eyebrows, thanks to the prevailing belief that there was too much capacity, too much fiber in the ground, explained Gruen. But fiber is location-specific; it cannot be moved. With increased competition and eroding landline revenues forcing the RBOCs to enter the television services market, they must deploy new fiber closer to the subscriber.
Fiber deployment increased from 4.8 million miles in 2003 to 10.9 million miles in 2005. The ILECs were responsible for 86% of this increase, upping their deployments from 2 million miles in 2003 to 7.2 million miles in 2005, contends the report.
Gruen was quick to note that much has changed in the U.S. telecommunications market since the pre-bubble days, and these changes have spurred fiber deployment. Telephone service, once the bedrock of the industry, now is being marketed as a bundled service with both Internet access and television. As recently as 2000, these were offered as standalone services, generally from different providers. Since then, the cable multiple systems operators (MSOs)--already successful in the television services market--have launched Internet access and voice service initiatives, thus posing a significant threat to the ILECs' landline revenue.
"The telephone companies are looking to respond to that threat by offering their own television services, and to do that, they are laying fiber," reported Gruen. Over the next four years, the ILECs are expected to deploy an additional 36.1 million miles of fiber.
Though the bulk of their fiber deployments occurred between 1996 and 2001, the MSOs themselves are expected to deploy an additional 5.2 million miles through 2009, primarily for replacement and upgrades.
Also contributing to increased fiber deployment in the U.S. are municipalities and municipal utility companies, which are deploying their own broadband networks to attract new businesses and raise the quality of life for their residents. Last year, municipalities and utilities deployed 746,000 fiber miles, up 23.1% from 2004, reveals the report. They are projected to deploy an additional 3.6 million miles through the forecast period.
Overall, TIA expects spending on fiber to increase from $9.5 billion in 2005 to $12.9 billion by 2009, a CAGR of 7.9%.
--Meghan Fuller