FY2000 Mid-term Demand Forecast of Telecom Equipment
The Communications Industry Association of Japan (CIAJ) Research and Statistics
Committee (31 corporate members; Chairman: Hirooki Matsuoka, Nitsuko Corp. [to
be renamed NEC Infrontia Corp. upon merger this April with integration of Key
Telephone and POS Terminal business operations with NEC Corp.]) compiled its
"Mid-term Demand Forecast of Telecommunications Equipment" for fiscal
year 2000. This report forecasts demand in the Japanese market (including exports)
from FY2000 through FY2005.
The demand forecast has been compiled at the end of every calendar year for
the past several decades. This year, to better serve the needs of CIAJ members,
major revisions were made in the methodology of the forecast. Due to changes
in the market environment, CIAJ felt that an accurate understanding of the market
required by member companies were no longer possible using the previous method.
1. Changes in the telecom equipment market of Japan
Recent global trends symbolized by privatization of telecommunications carriers
and the popularity of the Internet have increasingly highlighted the importance
of communications equipment and at the same time drastically changed the framework
for forecasting demand.
First, the bulk of traffic over telecommunication systems has moved from voice
to data. There has also been a shift from fixed telephones to cellular phones.
Such trends have resulted in the rise in demand for one type of equipment and
proportionately dwindling demand for another.
Second, foreign-made products, including OEM products, now dominate the fastest
growing market, namely the Internet access network market, which includes routers
and LAN switches. Unfortunately, most of these manufacturers are not CIAJ members
and do not have sufficient information on these products.
Third, there has been a change in the procurement activities of telecommunication
carriers. Carriers are increasingly pursuing the best protocol at the most economic
price as they conduct business beyond national boundaries and go through a process
of transformation through mergers and spin-offs. CIAJ can no longer rely on
elements such as NTT's mid-term procurement plan as a reliable predictor in
formulating our forecast.
Fourth, as IT becomes a vital pillar for national policy, these public policies
themselves have the potential to greatly influence the size and contents of
the IT market. For example, the pace in which the switch is made to optical
fiber cables for network access, or FTTH, will have a direct impact on demand
of relevant equipment.
All of these elements have complicated the task of compiling the forecast. Thus,
in making this forecast, CIAJ began by listing and analyzing the various indeterminate
conditions. Then, several possible trends were conceived, from which the most
likely scenario was created. However, it was presumed certain trends will influence
the scenario from a socioeconomic perspective in that they are vital factors
in realizing the IT society.
2. New Forecasting Methods
The two major changes in the current forecast are as follows. First is the attempt
to incorporate the drastic changes in the telecommunications equipment market
mentioned above in both qualitative and quantitative manners. Past forecasts
were based on figures gathered among the participating member companies of CIAJ
that were grouped into equipment categories and totaled. At a time when most
telecommunications equipment was developed, manufactured and distributed by
the participating companies, this was an effective and efficient method of attaining
forecasts. However, with the increase in market entry of equipment manufactured
by non-CIAJ member companies, the limits of effectively forecasting the market
using existing methodology became apparent.
From the current forecast, we have analyzed the demand for various types of
equipment (i.e., network equipment, terminal equipment) by market segments and
attempted to calculate the market size, taking into consideration environmental
changes (changes in social framework) and the resulting changes in user needs
and their uses of the products. Specifically,
- as parameters of overall environmental changes during the period covered in the forecast, trends in network traffic, number of users by Internet by access type, and number of subscribers to fixed and mobile telephone services were reflected in the forecast.
- for terminal equipment, an attempt was made to reflect changes in user needs numerically by including demand for new and replacement installation, changes in unit price, and trade offs between the rise and decline of competing equipment.
- for telecommunications infrastructure equipment, changes in traffic and resulting increase in the capacity of backbone networks along with the switch to faster access networks have been calculated into the forecast.
The second major change is the inclusion of non-CIAJ member data in the forecast
in order to grasp a more overall view of the market. In the past, it was not
possible to accurately reflect the market conditions in areas where the major
players were not participating in the forecast, such as Internet-related network
equipment, and there was potential for misleading interpretations. Thus, although
it is a daunting task, we have attempted to cover the entire market.
3. Forecast Findings
The expected actual figure for FY2000 is expected to show an increase of 11.7%
over the previous year. This is a reflection of a rebound after two consecutive
years of negative growth.
Furthermore, from FY1999 to FY2000, the average growth rate is expected to show
a strong figure of 8.3%. Please refer to the attached graph for details.
(1) Findings
Expected actual figure for FY2000: 4.6716 trillion yen (11.7% growth over the
previous year)
Forecast for FY2005: 6.7364 trillion yen, average annual growth rate from FY1999
to FY2005: 8.3%
*(1) The categories include the following equipment
Consumer equipment: includes cordless telephones, personal facsimiles, other telephone equipment, etc.
Business equipment: includes key telephones, PBXs, office-use cordless telephones, office-use facsimiles, etc.
Internet network equipment: includes routers, LAN switches & hubs, terminal adapters, and modems.
*(2) The value of car phones & cellular phones are designated on the right-hand y-axis.
For other categories refer to the left-hand y-axis.
(2) Outline
1] Underlying factors for strong growth expected in FY2000
The value of the telecommunications equipment market is expected to be 4.6716 trillion yen for FY2000 (11.7% growth over the previous year, 16.8% domestic growth, 5.9% decrease in exports). Cellular telephone terminals, which makes up for over 30% of the overall demand is expected to show a large growth of 25.9% reflecting the switch to Internet compatible terminals, such as i-mode compatible phones. Higher demand for IP equipment such as routers, LAN switches, TA and modems is expected to result in 35.4% growth.
In addition, capital investment by telecommunication carriers is expected to increase as a result of the following factors: the increase in procurement for ISDN infrastructure by NTT, strengthening of infrastructure by NCCs in lieu of entry in local markets, growth of the local exchange switching system market by 22.5%, and increased procurement of equipment in preparation for the commercial launch of next-generation mobile communications service (IMT-2000) in May 2001.
2] Major presumptions in compiling the mid-term forecast
In forecasting the telecommunications market through FY2005, it is necessary to consider the various elements that will be part of the structural changes occurring in this period. The following is a list of presumptions concerning the major elements.
a. Successful launch of third-generation mobile communications
The laying down of infrastructure for the launch of next generation (3G) mobile network in Japan (scheduled to begin in May 2001) has been under way since the latter half of FY2000. Investment in this network is expected to remain strong throughout the spring of 2003 as the network is enlarged to cover the entire nation. Furthermore, from 2002, CIAJ forecast that foreign demand will also increase with the launch of the service throughout the globe.
CIAJ forecast demand for 3G terminals to show positive growth despite a rise in its average price per unit, with users switching to new multimedia-compatible terminals that can take full advantage of the high-speed, large capacity communications realized by 3G services.
On the other hand, the fixed telephone market is expected to decrease in proportion to the spread of mobile communications. The trend is expected to become especially pronounced among single households, of whom over 30% are expected to not own fixed telephones in the end of FY2005.
b. Smaller telephone switching system market -- a trade off with IP equipment (QoS)
The local exchange switching system market in FY2005 is expected to be 30% smaller than that of FY1999. This will be the result of the switch in investment among telecommunications carriers from telephone networks based on switching systems to networks based on IP equipment, such as routers, in order to accommodate the shift in the nature of traffic (from voice to data) over recent years.
c. Strong impact of IP solutions in the business market
The abovementioned shift in the nature of traffic applies to business communication systems as well. Full-scale launch of e-commerce will further stimulate this trend, with integration of business communications equipment and LAN. Thus, key telephones and PBXs will become increasingly CTI and IP compatible.
d. Explosive increase in data traffic
The Internet will continue to grow as a social infrastructure. The increase in traffic will encourage larger capacity backbone networks. CIAJ forecast strong demand for equipment related to various Internet access networks, such as DSL, CATV and FWA, which will be used until nationwide FTTH becomes available in 2005. In addition, increase in international traffic will stimulate demand for large-capacity undersea fiber cables and transmission equipment.
e. Global business activities
Both the telecom equipment and service industries have entered the age of global competition and the competition will likely become more fierce. In such an environment, carriers and manufacturers will increasingly form alliances with foreign businesses with penetrating the global market in mind. Thus, the market will become borderless, with product development, production and sales occurring close to the point-of-sales.