TIA’s 2006 Telecommunications Market Review and Forecast

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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