Demand in telecoms equipment is shifting says analyst

With competition increasing and voice revenues declining, demand for broadband connections and the related network capacity needs will be the catalysts for telecommunications services and equipment revenue growth, according to a new report released by Standard & Poor's Equity Research

High penetration rates in developed markets, like the US and Europe, are limiting new subscriber opportunities, so telecoms companies are looking to revamp network offerings with innovative technologies, such as fibre lines, to enhance service delivery. Service providers and equipment suppliers also are looking at emerging markets, including Latin America and Asia, to increase market share through improved connectivity. These were among the findings from the Standard & Poor's report titled, 'Global Telecom Broadband: The Need for Speed Continues Despite a Slowing Pace', which was published recently.

"There are really two inter-connected stories here ̵1; the telecommunications service providers and the telecommunications equipment suppliers ̵1; that are playing out on a global scale," said Todd Rosenbluth, group head for US Telecommunications Services, Standard & Poor's Equity Research, and one of the study's authors. "Facing a drop in their traditional revenue base, it's no surprise to see many of the companies in the areas we examined expanding their horizons internationally and into new products."

The report describes equipment providers such as Corning and Netgear as the arms dealers in the competitive telecom world. "Despite high pricing pressure, we think the vendors will largely emerge victorious in the triple-play war," it states.

"While there's still a considerable amount of opportunity in broadband, particularly when bundled with services for video, it's not endless," continues Rosenbluth. "In our view, companies on both sides of the industry, including AT&T and Telefonica, will need to continue investing in next-generation offerings to increase bandwidth and deliver advanced IPTV, voice and high-speed Internet bundles. While the initial capital outlay may be substantial, the long-term effect of lowered operating expenses and increased competitiveness may boost shareholder returns."

Image: Margin pressures make emerging markets and technologies key drivers, as traditional voice revenues decline

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