Here Come the Giant Telecoms.

Despite uncertainties brought about by the consolidation of telecom services providers, a majority of analysts are projecting continued growth in worldwide telecom equipment and services spending, according to a new eMarketer report.

“Building on the recovery that started in 2004, worldwide telecom equipment and services spending should see healthy growth in 2005,” says Steve Butler, eMarketer Senior Analyst, in his new report, Telecom Spending and Trends.

According to data from the World Information Technology and Services Alliance (WITSA) and Global Insight’s Digital Planet 2004 report, worldwide telecom equipment and services spending is forecast to grow by 7.7% during 2005 to reach $1.53 trillion by year’s end, up from $1.42 trillion in spending during 2004. WITSA includes wireline and wireless voice and data services in its forecast, in addition to spending on related equipment by telecom carriers, enterprises, and consumers.

A comparative estimate by the US-based Telecommunications Industry Association (TIA), an industry advocacy group, is much higher than WITSA’s, estimating that worldwide telecom equipment and services spending will top $2.36 trillion in 2005, increasing by 10.0% over 2004 spending of $2.14 trillion.

Differences between these two forecasts can be attributed in part to the separate methodologies used to develop them. Specifically, the WITSA/Global Insight model has been built from the bottom-up, using estimates of industry-specific telecom spending across 70 different countries.

Outside of the United States, the TIA predicts that international telecom spending grew 10.2% in 2004, to reach $1.4 trillion. Between 2005 and 2008, non-US telecom spending is forecast to increase by a compound annual growth rate (CAGR) of 10.6%, as it surpasses $2 trillion in four years’ time.

A third estimate by Insight Research, a New Jersey-based firm, predicts that worldwide telecom services revenues (not including equipment) will reach $1.1 trillion by the end of 2005. During the next five years, Insight Research estimates that worldwide telecom services spending will increase by a CAGR of 5.9%, to reach $1.5 trillion by 2010.

Although North America and Western Europe are the two largest telecom markets in the world, WITSA expects the fastest growth to occur in Eastern Europe, where telecom equipment and services spending is predicted to increase 12.0% in 2005. By comparison, WITSA estimates that telecom spending will grow 11.2% in the Asia-Pacific region this year, where Japan, China and South Korea are the three largest markets.

For its part, the TIA does not break out Eastern European telecom spending from its overall forecast for Europe. As a result, the TIA’s figures show that Latin America and the Asia-Pacific region will lead regional telecom spending growth, as both markets should expand by 13.6% in 2005.

Among the key drivers behind the resurgence in worldwide telecom spending last year, the TIA notes that the global economic recovery has contributed to increased telecom spending, which has in turn supported further investment in infrastructure equipment and growing demand for mobile devices and wireless data applications.

“Several factors will continue to drive spending both worldwide and in the US,” says Mr. Butler. “”Businesses’ migration to converged voice-data IP networks is expected to be the single biggest contributor to enterprise telecom equipment spending growth over the next several years. But to the extent that telecom carriers can package their wireless services with voice, data, and video at a competitive price, they should also meet with success in the changing telecom landscape of the future.”