CUSTOMER DEMAND PROMOTES CARRIER WIRELINE SPENDING.

The economy is slowing, but customer demand is increasing and carriers are cutting in other parts of their organizations to finance growth.

In the first three quarters of 2001, 17 service providers spent a total of $64 billion, putting them on track to finish 2001 with total spending nearly equal to that of 2000. There were ups and downs, but the claims by vendors and others that spending has dried up are inconsistent with the figures being reported in carrier financial documents.

In 2001 there were CLECs that went out of business and carriers that completed construction, but the carriers that constitute the bulk of North American wireline spending did not drastically adjust their spending downward. The incumbent local and long-haul carriers, with the exception of Qwest and BellSouth, are maintaining returns on capex that are equal to or more than 25% of revenue. Nancee Ruzicka, program manager for the Yankee Group's Carrier Convergence Infrastructure research and consulting practice, states, "The sky is not falling, demand is not going unmet, and carriers continue to expand their networks." In the Yankee Group Report, "Capital Roll Call--2001 U.S. Carrier Wireline Spending," she adds, "The Yankee Group believes that the fate of some of the competitive and greenfield carriers has had a disproportionately negative effect on those that remain. Likewise, the hard times that have befallen network equipment vendors are not entirely the fault of the carriers."

In 2002, U.S. spending will start out slowly but pick up mid-year with large metro RFPs and the enactment of accelerated depreciation legislation.

The Yankee Group

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