Telecom Industry Growth Forecast Steady, If Slow

( PcWorld )- Despite fears of an economic downturn in the U.S. the telecommunications industry should see strong growth in the next three years, driven largely by increasing demand for broadband, the Telecommunications Industry Association (TIA) says.

The trade group expects the worldwide telecom market to grow to US$4.6 trillion by 2011, compared to about $3.9 trillion in 2006. About $1.3 trillion of the 2011 market will come from the U.S., the TIA said.

Broadband Boost

Driving these increases will be broadband, with its consumption doubling in 2006 and quadrupling again in 2007, said Arthur Gruen of Wilkofsky Gruen Associates, a consultancy that focuses on telecom and other industries. Video and entertainment applications are pushing customers to buy more broadband and telecom providers to build more capacity, he said.

There's been an "explosive growth in network traffic" driven by data applications in the wired and wireless industries, Gruen said on a teleconferance call held by the TIA. "Voice communications, the heart of the industry, is almost an afterthought now," he added. "Where the action is, is on the data side."

As late as 2003, many people in the telecom industry were saying they had enough bandwidth to last into the foreseeable future, Gruen added. "Now we are in a situation where, if we don't some significant investment now-- and companies are in fact doing it-- we may be running into bandwidth shortages," he said.

Broadband revenue is expected to grow by more than 13 percent a year through 2011, Gruen said.

Asked if an economic downturn in the U.S. would affect the estimates, Gruen said he didn't think it would have a major impact. "The telecom industry doesn't appear to be at the center of the downturn," he said, unlike during the dot-com crash in 2000 and 2001.

This downturn is "less of a threat" than the one in 2000-02, added Grant Seiffert, TIA's president. "There's a thirst for bandwidth out there that certainly is beneficial to the industry," he said.

The market for networking equipment still hasn't come back to its 2001 levels, but the market is growing, Gruen added. In the early part of the decade, investments in networking equipment were often based on predicted traffic growth, he said.

"We're now on an upswing, and we believe it's a sustainable upswing, and the reason is because it's demand, rather than supply, driven," he said. "During the late '90s and early 2000s, there was a huge level of investment in anticipation of traffic growth. The traffic did not immediately materialize."

Convergence Contributes

In large businesses, convergence of voice and data services onto one platform is finally happening after years of predictions, Gruen said. Internet Protocol VPNs (virtual private networks) are replacing frame relay and ATM (asynchronous transfer mode) technologies, he said.

TIA expects the market for U.S. landline telephone customers to decrease from 165 million in 2007 to 150 million in 2011, but the decline in customers should slow from past years, Gruen said. Much of the decrease in the past came as customers dumped second lines dedicated to dial-up Internet service or moved to mobile phones as their second lines, he said. Much of that movement should be finished, he said.

Customers are also moving to bundled services, including voice, broadband and television. "When you're having bundled services... there's less eagerness to switch providers," he said.

About 82 percent of U.S. voice customers will receive service through a bundle in 2011, compared to 40 percent in 2007, he said.

TIA expects VoIP (voice over Internet Protocol) penetration to more than double between 2007, from 16 percent now to 37 percent.

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