For Immediate Release
July 12 , 2006

Carrier spending for services in support of network infrastructure equipment to reach $72.5 billion in 2009

Arlington, Va. -- The U.S. network equipment market rose 15.9 percent in 2005 to $19.9 billion, the second consecutive double-digit increase following three years of precipitous declines, according to TIA's 2006 Telecommunications Market Review and Forecast, an annual study produced by the Telecommunications Industry Association (TIA). Between 2000 and 2003, spending fell a combined 71 percent. Total spending is expected to reach $20.9 billion in 2006 and $24.4 billion in 2009, a 5.2 percent compound annual growth rate (CAGR).

Developments in the landline services market are being reflected in the landline network equipment market. The ILECs' entrance into the television market to compete with cable system operators in offering triple-play service bundles is driving the fiber- optic cable market, which in turn is driving overall network equipment spending. The rebound of the past two years is due almost entirely to increases in fiber deployment – an ironic development, given the prevailing view in previous years that so much excess fiber capacity would depress equipment spending for years. The number of fiber miles deployed more than doubled to 10.9 million in 2005 from 4.8 million miles in 2003 and is expected to expand to 11.9 million in 2006 and nearly 15 million miles by 2009, exceeding the fiber deployment rates of the late 1990s. Most of that increase – 86 percent – was generated by ILECs, which increased their fiber deployment from 2.0 million miles in 2003 to 7.2 million miles in 2005 as they began putting television strategies into place. However, even with the recent increases, current spending has not approached its 2000-01 levels, nor does TIA expect it to do so during the remainder of the decade. Nevertheless, the market is expanding rather than contracting, and fiber will continue to be the principal growth driver.

The recent jump in fiber deployment reflects the facts that fiber is not fungible and that the nature of the telecommunications market has changed. Although there was ample fiber connecting major cities, that fiber is location-specific and cannot be diverted to other areas. Consequently, excess supply in one area cannot offset insufficient supply in another. When Verizon, for example, decided to go into the television distribution business using fiber-to- the-home, new fiber had to be deployed. Thus, aggregate capacity was less a predictor of future fiber needs than was originally believed.

These developments in the changing telecommunications market are stimulating traffic and driving demand for fiber and other network equipment. Broadband users spend more time online, visit more Web sites, download more high-volume content such as music, movies and video games, and send more high-volume content such as photographs than do dial-up users. All these applications require high bandwidth, and both telephone companies and cable operators are introducing new high-bandwidth options. Between 2000 and 2005, the wireless universe rose by nearly 90 million subscribers, and an additional 40 million new subscribers are expected by 2009. A portion of the surge in calling volumes from wireless users travels through the landline network, adding to capacity demands. Flat-rate pricing for local and long-distance calls, first introduced by wireless carriers, is being adopted by landline carriers now that local providers can offer long-distance service in their own regions. With landline subscribership falling and cable operators gaining landline telephone subscribers, ILECs and non-cable CLECs are being squeezed. With cable now a potent competitor, ILECs have decided they need to include television in their service bundles, leading them to invest in fiber. Over the next four years, ILECs are expected to deploy an additional 36.1 million miles of fiber. Annual deployments will rise to 9.8 million miles in 2009, an 8 percent compound annual increase. ILECs will account for two-thirds of new fiber miles over the 2006-09 period.

The ramp-up in fiber deployment is driving spending on ancillary equipment. One technology gaining favor is passive optic networking. Carriers are also considering advanced DSL gear. VoIP deployment is also stimulating investment. Another last-mile solution for the business community is Gigabit Ethernet. TIA expects total spending on fiber to rise from $9.5 billion in 2005 to $10.4 billion in 2006, reaching $12.9 billion by 2009, a 7.9 percent CAGR. Frame relay and asynchronous transfer mode (ATM) legacy technologies are declining and are expected to total $1.7 billion and $1.1 billion respectively in 2006. Central office equipment followed the pattern of the fiber market at the beginning of the decade. Spending fell from $27 billion in 2000 to only $7.5 billion in 2004, a 72 percent cumulative decline. Beginning in 2005, however, the market began to recover, edging up 1.3 percent to $7.6 billion.

The support services market has three major spending segments: traditional plain old telephone service (POTS) providers, cable operators and spending by all carriers to support broadband networks. Professional services revenue from all carriers rose 13.3 percent in 2005 to $50.1 billion. TIA expects another year of double-digit revenue growth in 2006, with revenue reaching $56.7 billion, and increases moderating to high single-digit levels in 2007-09. POTS carriers spent $27.4 billion on services in 2005, compared to $10.2 billion by cable operators. Spending in support of broadband networks totaled $12.5 billion in 2005, up 19 percent from 2004. Over the forecast period, POTS carriers will increase spending on support services to $37.3 billion in 2009, while cable operators will spend $14.5 billion. Services in support of broadband networks will reach an estimated $20.7 billion. Carriers' overall spending for services in support of network infrastructure equipment reached $50.1 billion in 2005, is expected to reach $13.2 billion in 2006 and to total $72.5 billion in 2009, growing at a 9.7 percent CAGR.

TIA's 2006 Telecommunications Market Review and Forecast provides an overview of telecom's interrelated market segments including landline network, enterprise and consumer, wireless communications, and international markets. It's available in hard copy or on CD-ROM. To order, please visit http://www.tiaonline.org/business/research/mrf/ or call +1 (703) 907-7074. To obtain a press copy of the report, please contact Jennifer Mead at +1 (703) 907-7723 or email jmead@tiaonline.org.

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About TIA
The Telecommunications Industry Association is the leading trade association for the information and communications technology (ICT) industry. As owner and producer of GLOBALCOMM™, TIA serves ICT suppliers to global markets through its leadership in standards development, domestic and international policy advocacy, and facilitating member business opportunities. TIA represents the communications sector of the Electronic Industries Alliance (EIA). Visit us at http://www.tiaonline.org. GLOBALCOMM™ is a trademark of the Telecommunications Industry Association (TIA). The Next-Generation Communications Marketplace and Summit will take place June 18-21, 2007, at McCormick Place in Chicago, Illinois, USA. Visit www.globalcomm2007.com.

P.A. Release: 06-64/07.12.06