TIA Upbeat on Telecom Industry Despite Recession

A slowdown is “less of a threat” to the telecom industry than in 2000 to 2002, Seiffert said. In that downturn, the industry miscalculated bandwidth demand and built too much infrastructure, said Arthur Gruen, a principal author of the report. The industry is investing in infrastructure to keep up with demand, he said. The network equipment market has improved and it’s a “sustainable upswing,” he said.

Government economy fixes also should help, TIA said. The stimulus bill allows a write off of 50 percent of capital investments for 2008, encouraging infrastructure investment, Seiffert said. Pressure to cut interest rates “probably will provide some marginal benefit as well,” Gruen said.

TIA predicted a “moderate” slowdown in composing the forecast over the summer and fall, Gruen said. “The economic environment has worsened a bit since then, but the basic drivers… are still positive.” Unlike 2000 and 2001, “telecom is not at the heart of the downturn,” and wireless and broadband should stay strong, he said. But telecom is “by no means immune” to recession, he said. “We certainly could see a bit of a pause in 2008… particularly by enterprises who may want to delay or hold back on some of their investment… We are not expecting a meltdown.”

VoIP and bundling are preserving the landline subscriber base, and VoIP will “overtake circuit-switched residential landline connections down the road,” said Seiffert. The next three years, U.S. landlines will drop less than 10 percent to 150 million, he said. In 2011, VoIP will comprise 37 percent of residential wireline connections, up from 16 percent in 2007. Meanwhile, 82 percent of landline connections will come as part of a bundle, up from 40 percent in 2007, he said.

Wireless is approaching subscriber saturation, but demand for data applications is driving up average revenue per user, Seiffert said. In 2011, wireless penetration will hit 90 percent, up 1,100 basis points from 2007, said Gruen. In 2007, U.S. wireless subscriber growth fell to single digits for the first time, Gruen said. “Data is where the action is,” he said. By 2011, data will contribute 35 percent of revenues, up 19 points from 2007, he said.

In 2009, wireless connections will pass landlines in the U.S., Seiffert said. That’s already happened internationally, he said. In 2011, U.S. wireless revenue will hit $200 billion, 26 percent more than landline revenue, Gruen said. TIA expects data to bring 84 percent of the growth, he said.

Spectrum won in the 700 MHz auction will fuel wireless growth starting later this year, Gruen said. The spectrum has “terrific” propagation characteristics, giving better coverage with fewer towers, he said. That will let carriers boost wireless speeds, promoting high-speed data applications, he said. Without the auction, wireless still would overtake landlines, he said. But the 700 MHz spectrum “will accelerate that movement.” The auction also stands to help the broadband market by extending high-speed Internet into rural markets, he said.

Unlimited minutes plans debuted Wednesday by Verizon, AT&T and T-Mobile (CD Feb 20 p17) are “more of a marketing tool than anything else,” Gruen said. “It doesn’t really cost the wireless companies that much to provide more minutes.” Top-tier plans with limited plans already “cover most of the usage,” he said. Unlimited plans are “the next step” to boost ARPU, he said. That the three carriers announced the plans the same day shows they are “fighting tooth and nail to hold onto their subscribers by offering more and more.”