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Global Communications Power: A White Paper on Recent Market and Forecast Trends

Depending on what you read, the overall telecommunications market is either on solid ground or has a tough road ahead. Both are probably true, since the world will not shut down even under the worst economic conditions. Opinions differ as to where, if any, growth will take place. For makers of communications power systems, the questions are spread over a number of different segments, from customer premises equipment, to wireless, to central offices, to emerging data communications technologies.

Regional economic impacts will play a role, as well. The Economist's yearly industry assessment for telecoms predicts that emerging economies will still invest heavily in network infrastructure, while recession-hit economies will delay upgrades. Falling revenue will hit the big telecom companies in slower-growth economies, while cash-rich telecom groups in emerging markets will be "increasingly well-placed to expand into Europe or the US."

On the optimistic side, Infonetics projects a 2% downturn in worldwide carrier capital expenditures in 2009, followed by a flat 2010 and a slow return to growth in 2011. More pessimistically, UBS thinks capital expenditures could drop 10% to 20% in 2009. Most service providers have clean balance sheets, so they are entering the global crisis on solid financial ground. They went through a correction when the Internet/telecom bubble burst several years ago, although the current recession could further challenge them. AT&T, the largest US telecom services provider, announced in December, 2008, that it would cut 12,000 jobs and consider reducing the amount it spends on network upgrades in 2009. North American carriers may slice spending on landline and TV-related networks by 34%, to $23 billion. Ovum expects major carriers' spending on wireless networks to remain flat.

The long-term outlook for wireless applications is actually quite good. Although general spending will go down in 2009, when they do make purchases, large enterprises will spend more on wireless infrastructure than on wired, according to Vanson Bourne. In Europe, 54% of IT directors had spent a greater portion of their budget on wireless rather than wired equipment. Part of the reason is that the actual cost of wireless network is between one-fifth to one-tenth the cost of installing a wired network.

Insight Research predicts that wireless revenues will jump from 60% of all telecommunications services in 2008 to 72% in 2013, which amounts to a 14.4% compound annual growth rate. The Asia-Pacific region will experience the highest growth rate in the next five years, at nearly 16%, led by China and India. The telecom sector in Latin America and the Caribbean will grow by 12%, fueled by emerging economies and the expansion of the middle class. Insight Research expects global telecommunications revenue to increase from roughly $1.7 trillion in 2008 to more than $2.7 trillion in 2013.

It is always important to remember that declining sales do not mean no sales at all. The past few years, in some ways, was the anomaly and did not represent a "normal" business climate for communications power systems. Like the housing market, communications unit sales and revenue have to go through a correction that will simply reduce the size of the market to more normal levels. The wireless sector, in particular, should continue to provide opportunities, even if somewhat reduced from previous years.

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