Fiberoptic Cable Market Returns to Double Digit Growth Rates

KMI: The amount of fiberoptic cable installed worldwide jumped 15% in 2005 compared with 2004 installations. North America led this surge with a 36% increase in installations, followed by Western Europe with a 22% increase. The annualized growth rate through 2010 will be 10%. These growth figures, based on kilometers of cabled fiber installed each year.

We saw 5% growth in 2004. That was welcome news after two years of declines, but the production levels achieved in 2005 and in the first quarter of 2006 have fiber and cable producers turning up unused capacity and will have them scrutinizing capacity requirements in the next few years.

Based on research into long-distance backbone projects, local access networks, and other applications, the cable market will average double-digit growth in unit quantities through the next five years. Within three years, the amount of fiber installed will surpass the peak level that was reached in 2001 when telecom and fiberoptics markets began to collapse.

First, where is this growth occurring and what customers are driving it? Two countries, United States and China, will account for almost 50% of demand from 2006 through 2010. U.S. and China's contribution to the worldwide market are shown in the accompanying figure. In the U.S., Verizon is the most important contributor. Last year, Verizon increased its installations of cabled fiber by more than 3 million km and accounted for 40% of the U.S. market. China Mobile is another major customer, installing millions of fiber-km in recent years to connect its switches together and to increase base-station density for 3G services.

Three operators, AT&T, China Mobile, and Verizon, accounted for 55% of the change in worldwide demand from 2004 to 2005 and will account for more than 20% of the growth in 2006. Local telecom operators in Western Europe also are ramping up larger regional, metropolitan, and fiber-in-the-loop projects. As a result, Western Europe will increase its share of the worldwide market from 16% in 2006 to 22% in 2010.

A second question is what's behind this growth--could the market be vulnerable to another sudden collapse? KMI concludes no because the carriers are funding the networks differently. During the telecom boom of 1997 to 2001, the massive investments in large-scale network projects were heavily funded by the capital markets. The near-term fiber-related investments in the local loop, however, are more closely tied to new broadband-service revenues, and the levels of carrier cap-ex, as percentages of gross revenues, are more consistent with investment levels before the bubble.

worldwide Optical Fiber and Cable Markets,

Publ 20060411