TIA’s 2006 Telecommunications Market Review and Forecast SOURCE: TIA TITLE: Summary of TIA’s 2006 Telecommunications Market Review and Forecast AGENDA ITEM: Opening 4.8 Joint CONTACT: Dan Bart, TIA gsc11_open_13a4r1 TIA’s 2006 Telecommunications Market Review and Forecast Briefing URL for more information: http://www.tiaonline.org/business/research/mrf/index.cfm

GSC: Standardization Advancing Global Communications Outlook Rebound in 2004 sustained in 2005 – U.S. up 8.9%, international rose 11.4% and global grew 10.6% U.S. growth projected at 9.0% compounded annually, international at 10.4% and global at 10.0% Global market will reach $3.9 trillion in 2009 -- $1.2 trillion in the U.S. and $2.7 trillion internationally GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications Growth Drivers in 2005 Broadband Wireless IP technology Public network equipment Professional services Latin America, Asia/Pacific, and Middle East/Africa led international growth GSC: Standardization Advancing Global Communications

U.S. Market in Transition Telephone becoming a component of a bundled service of local/long distance, broadband and TV Internet becoming a platform for voice -- VoIP Wireless carriers focused on boosting ARPU – promoting new applications and new devices Convergence taking off at the enterprise – IP equipment replacing legacy technologies For enterprise data transport, IP VPNs surging and legacy technologies fading Rebound in fiber deployment Landline declining GSC: Standardization Advancing Global Communications

The Competitive Landscape RBOCs and MSOs are principal competitors for landline subscribers Competition driving down broadband prices, spurring RBOC entrance into TV market and MSOs to wireless alliances Demand for IP systems to improve productivity and for CTI and other applications to enhance customer relations GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications Impact of Competition RBOCs and municipalities investing in fiber Enterprises buying IP equipment Variety of competing broadband platforms – BPL, WiMAX, 3G, Wi-Fi, others New wireless applications driving device spending GSC: Standardization Advancing Global Communications

Key Policy Developments RBOCs do not have to share high-speed infrastructure with CLEC competitors and ISPs UNE discounts phasing out Approval of major landline and wireless mergers GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications Policy Implications Facilities-based providers best positioned to compete RBOCs stepping up investment in DSL and fiber Rulings on broadband networks set the stage for RBOC entrance into TV distribution, while legislative efforts try to speed it up Traditional long-distance companies out of the market – the standalone long-distance business model no longer works GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications Network Equipment After falling by 71% between 2000 and 2003, spending rose by 31% during past two years Rebound in fiber spurred by RBOC entrance into TV Increased traffic will stimulate further investment Growth will average 5.2% to $24 billion in 2009, still less than half the total in 2000 but 61% higher than in 2003 GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications Broadband Broadband passed dial-up in 2005 RBOC-MSO competition driving down broadband prices Demand for high-volume applications – music, video games, movies – fueling growth GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications Voice over IP Market driven by expanding broadband universe, low prices, and range of features E911 issue VoIP will help stem landline erosion GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications IP Equipment IP-PBXs replacing traditional PBXs KTS owners trading up to IP-PBXs Centrex users shifting to IP-PBXs Need to replace aging equipment is spurring migration to IP-PBX GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications PBX Installed Base IP seen as a way to improve efficiency Standards-based architecture promotes competition Easy to install, easy to move Unified messaging IP installed base to pass traditional in 2008 GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications Data Transport VPNs beginning to cut into leased line, frame relay, and ATM market Cost savings Scalability Accessibility GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications Wireless Still room for expansion but subscriber growth will slow in percentage terms to 8.5% annually Penetration will increase from 66% in 2005 to 88% in 2009 Revenue will grow at 11.2% annually fueled by 3G, new applications, bigger plans GSC: Standardization Advancing Global Communications

Landline Developments RBOCs are now the major long-distance providers Standalone long-distance carriers are leaving the market CLECs without their own facilities are investing in their own equipment or leaving the market Cable operators are major competitors Broadband is now offered in a bundle with telephone service VoIP is becoming popular Television is becoming a necessary component in a service bundle Flat-rate pricing is replacing per-minute pricing model for long-distance GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications Landline Market Landline subscribership is falling Subscribers dropping second lines in favor of wireless Broadband cutting into demand for second lines for dial-up Internet access Some people now rely exclusively on wireless Flat rate pricing will help landline neutralize wireless advantage VoIP will attract subscribers to landline Landline erosion will moderate and landline revenue will stabilize GSC: Standardization Advancing Global Communications

International Markets Europe has the world’s largest market at $931 billion in 2005 Asia/Pacific in third (behind the U.S.) at $630 billion Asia/Pacific, Latin America, and Middle East/Africa will be the fastest growing Asia/Pacific will pass the $1 trillion level in 2009 and Europe will exceed $1.2 trillion GSC: Standardization Advancing Global Communications

Key International Drivers Governments are actively promoting broadband and encouraging carriers to upgrade Wireless broadband is taking off in Europe Wireless subscribership is growing explosively in Asia/Pacific Privatization and increased investment is boosting Middle East/Africa Rising incomes and a stable economic environment are benefiting Latin America Newly launched VoIP, text messaging interoperability, and mobile music are enhancing Canada GSC: Standardization Advancing Global Communications

International Internet Access Broadband will be the fastest-growing sector, expanding at a 28.3% annual rate Countries view broadband as essential to compete in the world economy Dial-up growth is also expected in Latin America, Asia/Pacific, and Middle East/Africa, while dial-up in Europe and Canada is declining GSC: Standardization Advancing Global Communications

International Wireless Markets Wireless is also a major catalyst for growth There is enormous potential for expansion, particularly in China and India Those two countries alone will add more than 400 million wireless subscribers during the next four years Except for Europe, which is saturated, each region will average double-digit annual growth GSC: Standardization Advancing Global Communications

GSC: Standardization Advancing Global Communications Global Market The telecommunications industry is expanding again The U.S.has returned to an upward path and international markets are growing faster Global growth projected at 10 percent compounded annually through 2009 Spending will rise from $2.7 trillion in 2005 to $3.9 trillion in 2009 GSC: Standardization Advancing Global Communications