PCCA Journal|4
th
Quarter 2012
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that 2013 will lead into a period of slowing and even shrink-
ing spending in this sector, which will again show improving
spending growth rates in 2015 and beyond (Exhibit 5).
Long-term communication spending is becoming a larger
part of overall information technology (IT) spending. One
downside is that this shift will reinforce one type of volatility
of the communications infrastructure market as IT spending
is closely linked to the overall business cycle. In contrast,
another type of volatility can be decreased as communication
spending becomes less tied to spending on mobile networks
that tended to move through cycles driven by overbuilding.
The demand for increased bandwidth is driven by more
than the needs of smart phones. The interconnected nature
of modern IT devices creates a baseline of consistent demand
growth for the communications industry that will serve as a
ridged bottom that should mitigate the historic and extreme
reductions in spending in this sector. Examples include:
• Use of tablets, televisions, smart meters, and smart infra-
structure are just a few of the many devices that require an
ever-increasing amount of bandwidth.
• Growth in cloud computing is expected to increase the
portion of total IT spending tied to communication spend-
ing. From 2011 to 2017, the number of cloud computing
subscriptions is forecast to grow from 300 million to 1.2
billion (Exhibit 6).
5
This shift is reinforced by statistics de-
scribing telecommunications-related IT spending. Globally
$3.6 trillion dollars will be spent on IT in 2012. The largest
component of this spending is telecommunications related,
accounting for 48 percent of the total ($1.69 trillion).
6
• Forecasting heavy bandwidth usage will increase demand
from 390GB per month in 2011 to 440GB per month in
2015.
7
• Forecasting light bandwidth users will increase from 18GB
per month to 45GB per month during the same period.
8
One area not immediately driving high spending growth
is the continuing build-out of 4G
LTE networks.
9
This spending will
not create a boom in overall spend-
ing, as much of the funds that were
allocated to upgrade and expand the
3G networks are being moved over
to support 4G. As a result, overall
spending is relatively flat and should
remain that way for some time.
10
Rural and small telecom firms are
in a holding pattern for spending.
The Federal Communications Com-
mission (FCC) voted in September to “reconsider its long-
standing limits on how many frequencies any one cellphone
service provider can hold.”
11
This comes at the same time
that the FCC is encouraging television broadcasters to give
up spectrum licenses for auction to wireless carriers. The
availability of new spectrum combined with the possibility
that large carriers (specifically AT&T and Verizon) could buy
up large portions of the best frequencies, could severely limit
the ability of small carriers to grow and further consolidate
the industry.
Overall Conclusions
In the utility sector, utility leadership and entrepreneurs face
a host of challenges and opportunities. These leaders will
have to muster the courage to take on the risks associated
with infrastructure investment and beginning the cycle of in-
vestment, demand, shortages, rising prices, sense of urgency,
improving perceptions, and starting again with investment.
These decisions are fraught with risk but will set the stage
for the safe, reliable, and high-quality infrastructure upon
which American competitiveness will be built over the next
generation. Geoff Colvin, Fortune senior editor and speaker,
might have described this situation the best when he said,
“Marathoners and Tour de France racers will tell you that
a race’s hardest parts, the uphill stages, are where the lead
changes hands...when the road levels off and the world seems
full of promise once more, your position in the competitive
pack will depend on how skillfully you manage right now.”
Today we are in the race’s hardest parts, and what stands
before us is a stark choice. An absence of leadership and
courage will likely create a downward spiral of U.S. competi-
tiveness as our infrastructure become older, less safe, and
less effective versus our global competitors. A willingness
to lead and take risk can start an upward cycle of percep-
tion and action. Improving perceptions create willingness to
2013 Utility Outlook
Continued from page 17
Exhibit 6
Worldwide Forecast of Personal Cloud Storage Subscription
Millions of Users
Source: Rebello, Jagdish,“Subscriptions to Cloud Storage Services to Reach Half-Billion LevelThisYear”IHS, September 6, 2012.
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