According to TIA’s 2011 ICT Market Review & Forecast, “The telecommunications industry in 2010 began to recover from the global recession that led to a decline in spending in 2009. Spending in 2010 rose 4.7 percent, more than reversing the 3.3 percent decrease in 2009. The United States was affected more than other regions and experienced an 8.2 percent decline in 2009 and a 2.4 percent advance in 2010. We expect faster growth beginning in 2011, helped by a stronger economy and explosive demand for data transmission. We project global spending to grow at rates in excess of 7 percent annually through 2013 followed by a 6.1 percent advance in 2014. The U.S. market will continue to grow at slower rates than international markets but we also expect larger increases in the United States through 2014 compared with 2010.”
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For the past 15 years, TIA’s Market Review and Forecast has been written by Arthur Gruen- an Economist and Chief Analyst at Wilkofsky Gruen Associates.
Highlights for the wireless, wireline and enterprise/consumer markets are presented in this article. In those sections, the term “we” refers to Mr. Gruen and not this author. I will be interviewing Mr. Gruen for his perspective on various aspects of the telecom market. The results of that interview will be published in a forthcoming Viodi View article.
Wireless Market Overview
Surging Internet and mobile traffic is leading to capacity shortages and putting pressure on providers to invest in their backbone and wireless infrastructures. Growing penetration of smartphones and tablets and roll-outs of LTE and other high-speed wireless network technologies will further propel data traffic.
High speed wireless services at premium prices will drive wireless spending even as subscriber growth slows. Beginning in 2011, growth in average revenue per subscriber (ARPU) will become the principal driver of wireless spending for the first time.
In the enterprise, investment in more bandwidth to accommodate surging data traffic requirements and increase storage needs will stimulate spending.
The emergence of cloud computing as a substitute for premises-based equipment will cut into equipment growth but will expand the overall market as more companies will be able to afford state-of-the-art services. On balance, we expect cloud computing to have a positive impact on total spending.
Conferencing will have a growing role in the market as it provides direct and measurable cost savings, particularly the reduction of outlays for business travel.
An expanding economy will support growth in telecommunications spending during the next four years.
Wireline Market Overview
Overall landline spending edged down 0.5 percent in 2010, the third consecutive decrease, but a much more modest slide than the 8.2 percent decline in 2009. The drop in 2010 was also less severe than the 1.3 percent decrease in 2008. In 2010, the 3.9 percent fall in voice services offset increases in the rest of the market. Data services rose 7.9 percent, network infrastructure spending increased 2.3 percent and support services grew 1.6 percent. In 2009, by contrast, data was the only category to expand.
The majority of funds provided in the American Recovery and Reinvestment Act will be distributed in 2011, which should lead to the initiation of projects for the expansion of broadband, most of which will be used to extend the network backbone. Apart from the stimulus package, the backbone infrastructure market is being driven by the need for more bandwidth to meet surging growth in data traffic. The extension of broadband into rural areas will boost the Internet access market.
While households will continue to drop their landlines to rely exclusively on wireless to save money, that trend will moderate as economic conditions improve and as the remaining landline market is comprised of more affluent families. As telephone companies begin to attract television subscribers from cable, they will be more successful in holding their telephone subscribers.
VoIP will continue to gain at the expense of circuit-switched service. VoIP will reach 24 percent of the circuit-switched subscriber base in 2014 from 18 percent in 2010.
IPTV subscription spending will nearly triple to $12 billion in 2014.
We expect the overall landline market to begin to expand in 2011 with a 3.7 percent increase, principally because of a projected 16.0 percent rise in network infrastructure spending that will be fueled by a 31 percent increase in backbone infrastructure spending. The majority of funds provided in the American Recovery and Reinvestment Act (the Stimulus Plan) will be distributed in 2011, which should lead to the initiation of projects for the expansion of broadband, most of which will be used to extend the network backbone.
While we expect the circuit-switched voice market to continue to decline, we project decreases to moderate. The impact of cancellation of second lines when households switch from dial-up to broadband and when children switch from landline to wireless will largely have run its course. At the same time, the entrance of telephone companies in the television market enables them to compete with cable in offering triple-play packages that will help them retain their landline subscriptions. Meanwhile, the VoIP market will continue to expand, albeit at moderating rates, as penetration increases. On balance, we expect the voice market to be virtually flat in 2013-14.
Enterprise and Consumer Markets Overview
The U.S. enterprise and consumer market consists of enterprise equipment and services, services in support of equipment, and consumer telecommunications landline equipment. Total spending in 2010 rose 1.1 percent, reflecting a stabilizing market following the 11.5 percent plunge in 2009. Each category except consumer telecommunications equipment posted increases in 2010. As the underlying economy improves, we expect spending on telecommunications equipment to increase at faster rates. In addition to the economy, investment in more bandwidth to accommodate surging data traffic requirements and an increase in storage needs will stimulate spending. The emergence of cloud computing as a substitute for premises-based equipment will cut into equipment growth but will expand the overall market, as more companies will be able to afford state-of-the-art services. We expect cloud computing to have a positive impact on total spending.
The market began to recover in 2010 as the economy stabilized. As economic conditions improve, growth in spending on telecommunications equipment will increase.
Investment in more bandwidth to accommodate surging data traffic requirements and rising storage needs will drive spending.
Cloud computing is emerging as a substitute for premises-based equipment but will expand the overall market as more companies will be able to afford state-of-the-art services.
Videoconferencing and Web conferencing, which provide direct and measurable cost savings, will comprise an increasing share of total spending.
Internet protocol virtual private networks (IP VPNs) are rapidly gaining share at the expense of frame relay and asynchronous transfer mode (ATM) solutions, both of which are falling precipitously.
Leased lines are maintaining a major presence, as they are used in dedicated IP VPNs, a growing component of the market. Carriers are converting to multi-protocol label switching (MPLS) in their core networks to facilitate IP transport. Ongoing convergence to IP technologies and upgrades to accommodate the transition to IPv6 will drive the market over the long run.
On balance, we look for overall growth to improve to 3.4 percent in 2011 and to 5.6 percent in 2012, with gains of 6.5 percent or more projected for 2013-14. We expect the market to rise to $620 billion in 2014 from $500 billion in 2010, a 5.5 percent compound annual increase.