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Report: Telecommunications turnaround

Fueled by wireless and broadband, spending on network services will rise 6.1 percent to $345 billion in 2003, according to a prediction by an industry trade group.

Spending on network services will grow 6.1 percent to $345.3 billion in 2003, according to a prediction by a telecommunications trade group.

The Telecommunications Industry Association on Thursday announced the forecast as part of its annual market report, which suggested signs of improvement for the beleaguered telecommunications sector. Growth is expected across all areas of network services, the TIA said, with wireless services and high-speed Internet access likely seeing the greatest gains.

Among other things, the report pointed to likely positive effects resulting from the Federal Communications Commission's recent decision regarding local phone competition rules, which freed the Baby Bells from sharing future high-speed networks with competitors at government-mandated rates.

"In the next year, we expect to see infrastructure build-out resume more earnestly as service providers prepare their networks to support broadband applications that keep consumers connected at home, at work and on the go," TIA President Matthew J. Flanigan said in a statement.

TIA said it expects the high-speed Internet access market to grow at a compound annual rate of 26.5 percent from 2003 to 2006, rising from $15.6 billion in 2003 to $28 billion in 2006.

The group attributed some growth patterns to several well-known trends in telecommunications services that have customers acquiring new equipment and services. These include a steady shift in the local residential market to wireless services and a shift among business customers from leased-line access connections to other technologies, notably frame relay, asynchronous transfer mode (ATM) and Internet protocol virtual private networks (IP VPNs).

TIA said it expects the virtual private network (VPN) market to expand by 42.2 percent in 2003, to $16.6 billion from $11.7 billion in 2002, and reach $21.3 billion by 2006. ATM, meanwhile, is expected to grow at an annualized rate of 16.7 percent from 2003 through 2006.

The group added that recent steep declines in spending in the wired network equipment and facilities market will reverse in 2003. Having plunged some 49 percent in 2002, spending is expected to expand by an 8.5 percent compound annual rate from 2003 to 2006, reaching $30.4 billion in 2006, the report said.

Although TIA singled out the FCC's competition ruling as a possible spur to investment, industry reaction to the decision could indicate otherwise.

Federal regulators hoped the ruling could push the Bells to extend broadband networks directly to homes using more modern and less expensive fiber optics. But Verizon, for one, has already indicated that might not be possible, given the nuances of the decision.

"This is a major setback for the industry, a setback for consumers served by industry and a deterrent to...investment into new facilities," said Verizon Senior Vice President Tom Tauke shortly after the Feb. 5 ruling.

One key objection is that the FCC is still requiring major phone companies to maintain and share with competitors the existing DSL networks made of copper cables, effectively requiring them to support dual networks should they decide to build new ones.