Telecommunications Equipment
SIC 3660
NAICS 517
Telecommunications hardware manufacturers build myriad components to sustain the world's communications systems. Serving both commercial and residential users, examples of industry products include transmission and switching equipment, telephones, and related devices for facilitating and managing voice and data communications. For information regarding providers of communication services using such equipment, see Telecommunications Services.
The outlook for the telecommunications industry remains vibrant around the world. Demand for telecommunications equipment continues to register healthy gains as enterprise spending on equipment reached $99.7 billion in 2004. Spending was expected to continue rising to $121.8 billion by 2007, according to the Telecommunications Industry Association's (TIA) 2004 Telecommunications Market Review and Forecast. Global telecommunication revenues reached US$2.1 trillion in 2004, according to the TIA, and were expected to reach $2 trillion worldwide by 2007. The network equipment market was expected to reach $16.4 billion in 2005, followed by 7 percent annual growth through 2007.
In mature markets, manufacturers emphasized emerging technology such as wireless and networking equipment because of the robust demand for the Internet and computer networks, while in developing markets they focused on basic telephone technology such as phones, answering machines, and switching equipment. Consequently, telecommunications equipment companies expect the industry to experience even stronger growth by 2010. The wireless communications segment was the fastest growing in the industry during the mid-2000s. Internet protocol (IP) applications and systems were a major growth area, with 70 percent increases in traffic annually. Revenue for IP applications such as web conferencing also rose quickly, and internetworking equipment was expected to grow more than 7 percent annually through 2007, as reported by the TIA.
The telecommunications industry was headed by a few major companies. The top ten companies in the industry, which controlled just under three-quarters of the global market, were concentrated in North America, Western Europe, and Japan. These regions have historically been the major markets due to extensive telephone communication systems developed to meet the expanding needs of business. Although new technologies and markets were changing the industry, the same companies remained the industry leaders for decades, some for more than a century. Previously, participants in the telecommunications equipment industry were confined to domestic markets. However, international trade in the industry was expanding rapidly. Most leading companies derived at least 30 percent of revenues from foreign sales. The industry was also characterized by high levels of research and development expenditures—high costs are more easily absorbed by huge corporations and conglomerates. By the mid-2000s, the industry was experiencing a high number of mergers and acquisitions, and this trend was expected to continue for the foreseeable future.
The equipment market consists of network equipment, which is used by telephone service operators, and customer premises equipment. Network equipment comprises switching and transmission equipment. Switching equipment includes central office switches, switchboards, packet switches, mobile telephone switching offices, microwave switches, and data communication switches. Unlike other switching equipment, data communication switches are increasingly used on private premises, where they facilitate data transmission within computer networks. Transmission equipment includes multiplexing equipment to make it possible to transmit multiple signals over a single communications line, repeaters to strengthen signals over long distances, and line-conditioning equipment.
Customer premises equipment, also called terminal equipment, is privately owned or leased equipment attached to the telecommunications network. It includes private branch exchange (PBX) equipment to switch multiple lines on private premises; telephones; key telephone systems to handle multiple lines, but fewer lines than PBXs; fax machines; modems to convert between analog and digital signals in order to connect computers to telephone networks; telephone answering machines and voice mail systems; and video communications equipment. Technological innovations enabling switching between wireless fidelity (WiFI) and wireless systems, as well as Internet protocol-based systems, were also emerging during the mid-2000s.
Leading telecom equipment companies manufacture central exchange office switching and PBX equipment and also offer products in most other equipment categories. Many smaller companies manufacture customer premises equipment, but don't produce for the commercial market. Some specialize further in certain types of terminal equipment, such as fax machines or modems. Dozens of new companies also compete in the growing market for data communications equipment, especially in the United States, where it is largely an outgrowth of the country's strong computer industry.
The precursor to modern telecommunications, the telegraph was based on the invention of the voltaic pile—a device used to convert chemical energy into continuous electric current—in 1880, and the invention of electromagnetic detectors in 1836-37 by William Cooke and Charles Wheatstone in Great Britain and by Samuel Morse in the United States. Telegraph systems involved the interruption of, or change in, the polarity of direct current (DC) signaling to convey coded information over cables. The basic telegraph apparatus was the telegraph key, a switch for making and breaking a circuit to create pulses of information in Morse code. Early manufacturers of telegraph equipment usually manufactured other electric equipment as well. As the industry formed in the latter half of the nineteenth century, specialized manufacturers emerged.
In 1876 Alexander Graham Bell patented the telephone in the United States. He developed both variable resistance and magneto-induction devices. While the former was superior, the latter was more reliable at first and hence was the first commercialized version. Initial outdoor transmissions used telegraph lines. Some early telephone equipment companies had been manufacturing telegraph equipment and branched out, while the rest were entirely new companies, created to satisfy the huge new market. The spread of telephone networks in the twentieth century largely replaced the use of telegraph systems, and telegraph equipment has since become an insignificant part of the industry.
Various advancements in telephone equipment have been made over the years. The first coin-operated telephones were introduced in 1889 and AT&T patented the first automatic dial systems in 1891. In 1912 the vacuum-tube repeater was invented to improve signals carried over long distances. Long distance service was further enhanced with the invention of the diode and the refinement of the triode, audion, and hard valve lamps between 1904 and 1915. By 1960, rotary switching systems began to be replaced by crossbar switching, an electro-mechanical system that used sets of magnets on vertical and horizontal bars. The first electronic switching equipment, as opposed to electro-mechanical, was introduced in the United States in 1965. This equipment accelerated automatic switching and permitted a significant increase in the volume of telephone traffic. Large scale integrated circuits improved in the 1970s to the point of permitting the development of digital switching to replace electronic analog switching in central offices.
Before 1970, the telecommunications equipment industry consisted of a small number of companies—many approaching monopolies—in each country that supplied their respective domestic markets. The market consisted of primarily public telecommunications operators, which, as government monopolies, procured equipment through bids but tended to favor one or two suppliers through close relationships. The objectives were to achieve common equipment specifications and stability of supply. Government telecommunications administrators protected the equipment industry and true free market competition was not fostered. In this sense, the telecommunications industry resembled the structure of the defense industry.
Pockets of international competition did exist, however. Equipment companies from industrialized countries expanded and competed in developing countries where indigenous telecommunications manufacturers were either nonexistent or lacking in needed technology.
Historically, telephones and other customer premises equipment were sold exclusively to telephone operators rather than directly to the customers. Telephone companies in turn leased this equipment to subscribers. Customer premises equipment was considered part of the same network system and compatibility had to be maintained. It also was feared that third-party equipment might somehow damage the network. Regulations in many countries actually prohibited customers from connecting equipment to telephone lines that was not provided or authorized by the telephone company. For example, it was prohibited to use non-AT&T equipment in the United States until 1968, and in Germany...
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