PCCA Journal|1
st
Quarter 2015
16
6UJMJUZ 0VUMPPL
Continued from page 14
Communication
Spending Forecast
The dominant trend in communication spending, as always,
is volatility...the trough in 2003, the peak in 2007, the trough
in 2012. We enjoyed a mini spike in spending in 2013, and we
are now forecasting growth in spending that is accelerating in
2015 and 2016. The growth in these years is driven by a single
factor: competition between Google, AT&T, Verizon, and Cen-
turyLink among others to bring fiber and high-speed service
to major cities in the United States. This competition is the
sole driver of growth in 2015 and 2016, while the underlying
growth rate in spending is below 3 percent. We also anticipate
this competition to conclude by 2017, reducing the spend-
ing growth rate. Beyond 2018, we anticipate faster spending
growth associated with the still undefined 5G technology as
well as faster U.S. economy and housing growth that will ap-
proach a cyclical peak around
2020 (Exhibit 7).
Communication
Trends
The build-out of the 4G
infrastructure is nearly
complete nationwide and
the underlying short-term
future for spending growth
is related to incremental
improvements in capacity.
The rejection of the Sprint/T-
Mobile merger signals an end
to industry consolidation. This
lull in typical activity will not last
if Google is effective at sparking
competition for faster internet
connections. Google is currently
rolling out Google Fiber in Kansas
City, Austin, and Provo. As of
January, a second wave of cities
were selected, including Atlanta,
Charlotte, Nashville, and Raleigh-
Durham. The company has further
indicated plans to expand into
additional cities. Jason Armstrong,
an analyst with Goldman Sachs,
estimated that the company could
spend approximately $1.25 billion
annually to connect 7.5 million
homes through 2022.
7
Google Fiber is not really an effort to become a major
player in the Internet Service Provider market, but more of
an effort to create competition among traditional broadband
providers including AT&T, Verizon, and CenturyLink to offer
faster service.
8
The growth we are forecasting in 2015 and
2016 is solely related to Google spending on its fiber program
in conjunction with some spending by traditional ISPs in
response to the competition.
Beyond 2016, the underlying growth is driven by data
management. The Telecommunications Industry Association
stated:
“Big data is driving the accelerating investment in the U.S.
market. Growing consumer demand for data led to a double-
digit increase in spending on wireless telecommunications
Exhibit 6
Exhibit 7