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Report: Telecom spending to remain weak

Spending by telecommunications carriers will continue to decline in the next few years, but not as severely as expected, according to a Robertson Stephens report.

Spending by telecommunications carriers will continue to decline in the next few years, according to a new report from Robertson Stephens.

Analyst Paul Johnson sounded the common refrain about slowing spending Monday, but did add a new note, saying that the decline will not be "nearly as severe" as the 15 percent to 35 percent drops predicted by some of his competitors.

After years of phenomenal growth, telecom carriers have cut back on spending sharply over the past few months, and the fallout has been evident among equipment vendors such as Lucent, Cisco Systems, and Nortel Networks.

And analysts have said that the spending cuts being felt today are just the beginning. Earlier this year, Sanford Bernstein analyst Paul Sagawa predicted that capital spending by North American carriers will drop as much as 20 percent from 2000.

Johnson echoed those predictions Monday, saying he expects total U.S. carrier capital expenditures to drop 13 percent year over year in 2001, 12 percent in 2002 and 6 percent in 2003.

The bulk of that drop will come from cutbacks at independent carriers, competitive local exchanges, and emerging long-distance carriers.

Those companies are, for the most part, newcomers to the telecom field who got into the markets after the Telecommunications Act of 1996 opened up competition, and have taken on the traditional players, the regional Bell operating companies.

But now those companies are cutting back on spending as they get hit with cash-flow and funding issues.

"While spending may decline over the next few years, these declines are off the extremely high spending levels of the last several years," he said in the report. "Growth in the level of capital spending by incumbent carriers began to accelerate in 1995, driven by accelerating demand for wireless services, the early stages of the Internet and the growth ignited by the 1996 Telecommunications Act," he wrote.

But the regional Bell operating companies are continuing to spend money on capital projects, such as building out and expanding networks, Johnson said.

Johnson estimated that over the next three years, the regional Bell companies will on average spend the same percentage on capital expenses as they had in the 1990 to 1995 range and the 1996 to 2000 range.

"While we do not believe the competitive pressure to complete the build-out of bigger and better networks has vanished, we believe it has been lessened by the greater economic slowdown that has affected all carriers and the disappearance of many alternative carriers," he wrote.