Study: 2004 was 'turnaround' year for telecom industry

The U.S. telecommunications industry appears to have come out of its slump from earlier this decade, with spending projected to grow 9.5 percent a year from 2004 to 2008, according to a study released Tuesday by the Telecommunications Industry Association (TIA).

TIA, a trade group representing IT vendors and telecom carriers and equipment vendors, predicts that U.S. telecommunications revenue will increase from $785 billion in 2004 to $1.1 trillion in 2008, after four years of modest growth. For the first time in four years, U.S. telecommunications spending grew in 2004, and U.S. telecom spending grew 7.9 percent in 2004, noted Matt Flanigan, president of TIA, based in Arlington, Virginia.

"I believe it's fair to say that the 2004 year was a turnaround for the overall telecommunications industry," Flanigan added.

Several factors will drive the revenue increases, including rapid adoption of voice over Internet Protocol (VOIP) among enterprises and other consumers, growing adoption of broadband Internet access and the ability of major telecom vendors to provide a full range of services, including Internet and voice, said study co-author Arthur Gruen of telecom consultancy Wilkofsky Gruen Associates Inc.

Growth in the industry has been fueled by decisions at the U.S. Federal Communications Commission relaxing rules that incumbent telephone carriers share parts of their networks with competitors, as well as U.S. President George Bush's push for universal broadband availability by 2007, Gruen said.

The announcement this week that SBC Communications plans to acquire AT&T is an example of telecom companies combining to become full-service providers, Gruen said. SBC, with its focus on residential phone service and broadband, is planning to buy AT&T, which has focused on enterprise telecom and IP services.

Regional Bells such as SBC and cable television companies are "all looking to offer everything in one big bundle," Gruen said.

Among the study's predictions:

-- U.S. subscribers of cable TV using cable for telephony applications will jump from 3.3 million in 2004 to 7.4 million in 2008.

-- The number of VOIP lines in the U.S. will grow from 6.5 million in 2004 to 26 million in 2008.

-- Spending on networking equipment, which dropped 71 percent in the U.S. between 2000 and 2003, will grow from $15.8 billion in 2004 to $21.9 billion in 2008.

-- The number of broadband users in the U.S. will pass dial-up users this year, with broadband growing from 32 million lines in 2004 to nearly 57 million lines in 2008.

-- Spending on enterprise telecom equipment grew 5.9 percent in 2004, and will grow more than 7 percent a year between 2004 and 2008.

In addition to the growth predicted in the U.S. telecom market, the study's authors projected faster growth outside the U.S. The study predicts non-U.S. telecom spending will grow at a compounded rate of 10.6 percent between 2004 and 2008, from less than $1.4 trillion in 2004 to more than $2 trillion in 2008.

"This is perhaps the most up-beat report that we've been able to do since 2000 or 1999," Gruen said. "It's nice to be able to see a market that we think is expanding."

Independent telecom analyst Jeff Kagan called the report good news for the telecom industry. "Telecom was growing until it hit a brick wall a few years ago," Kagan said in an e-mail. "By late 2004 it seemed obvious that telecom was getting hot again. I think 2004 was the turn-around year and 2005 will hit the ground running, both domestically and worldwide. Phone companies and wireless companies and cable companies are spending again and investing in their networks and getting ready for a new level of competition with each other."