Forecast Calls For Double-Digit Network Capex Growth In 2005

Network equipment sales are expected to grow at double digit rates next year to be worth $16.4 billion after a more modest 2.3 percent increase in sales to $14.4 billion in 2004, according to just released figures from the Telecommunications Industry Association (TIA).

The Association estimates spending by network operators will show high single-digit increases in 2006, with a mid-single-digit advance in 2007. Spending will grow 7.0 percent at a compound annual growth rate (CAGR) through 2007, rising to $18.5 billion.

The TIA's annual forecasts report suggests the recovery from the past three years of decline will be led by the regional Bell operating companies (RBOCs), though it will not recover to the levels of 1999 and 2000. RBOCs face an overall declining market and are looking for new revenue sources and will need to invest in equipment to support them.

The TIA says a significant investment in fiber will be needed for RBOC long-distance, data and television initiatives.

"Over the next three years, we expect a reinvigorated network equipment market. For example, RBOC investment in fiber, migration to next-generation technologies, increased demand for high-speed DSL and rising wireless data traffic all will drive growth. One important underlying assumption to this increase is that the FCC's broadband deregulatory framework remains intact," TIA President Matthew Flanigan said in a statement.To provide data services, RBOCs will need to upgrade their networks to be Internet protocol (IP)-capable; to deliver television programming, they will need to expand their fiber networks to the home. These upgrades have already begun, and in 2003, RBOCs recorded a modest increase in fiber deployment.

Incumbent local exchange carrier (ILEC) fiber deployment is projected to increase 26.2 percent in 2004 and an additional 41.5 percent in 2005. In 2007, ILECs are expected to deploy 4.6 million miles of fiber, the highest of any year except 2000 and 2001. Total fiber deployment is expected to reach 7.4 million in 2007, a 12.0 percent CAGR from a low base.

Looking back, the TIA said the sector continued its three-year correction in 2003, declining 15.2 percent to $14.1 billion, a decrease that followed a 61.1 percent drop in 2002 and a 17.6 percent decrease in 2001. That decline offset an unsustainable run-up in the late 1990s, particularly in the fiber-optic cable market, where deployment more than doubled between 1997 and 2000 (from 7.6 million miles to 19.6 million) before coming nearly to a complete halt in 2000.