Telecommunications equipment industry

Industry Snapshot

GENERAL INDUSTRY: Manufacturing

CAREER CLUSTER: Manufacturing

SUBCATEGORY INDUSTRIES: Alarm System Monitoring Equipment Manufacturing; Data Communications Equipment Manufacturing; Global Positioning System Equipment Manufacturing; Mobile Communications Equipment Manufacturing; Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing; Telephone Apparatus Manufacturing; Telephone Central Office and Switching Equipment Manufacturing; Traffic and Railroad Monitoring and Signaling Equipment Manufacturing

RELATED INDUSTRIES:Computer Hardware and Peripherals Industry; Internet and Cyber Communications Industry

ANNUAL DOMESTIC REVENUES:US$2.9 billion (IBISWorld, 2024)

ANNUAL GLOBAL REVENUES:US$4.5 trillion (First Research, 2024)

NAICS NUMBER: 3342

Summary

The telecommunications equipment industry manufactures devices that facilitate the exchange of information across distances. It provides hardware and systems for voice, video, data, image, media, Internet, financial services, and process control through wired, wireless, fiber, cable, and satellite services across the planet. Products include radio and television broadcasting equipment, antennas, cable television equipment, telephone handset and switching equipment, and data communications equipment. The infrastructure that the industry plugs into is often a combination of wire lines, fiber cables, and wireless and satellite link equipment. Customers range from government-owned telecommunications service providers to large public or privately held companies to individual consumers.

History of the Industry

Optical telegraphy in the late 1700s used a telescope to make possible transmission of information across long distances. A person with flags sent information by semaphore. Equipment started with basic telescopes and then included light signaling devices, which heralded the age of optical telegraphy. This then progressed to mechanical semaphore and light towers used to send coded information. These forms of telecommunications depended on line-of-sight to see, record, and decode the message being sent. Electrical telegraphy was made possible by the growth of the science of magnetism and electrical signaling. Electrical technology replaced the optical (eyesight-based) forms of telecommunications by sending coded electrical impulses to mechanical devices which read the code and could record marks on paper. The use of copper and insulation gave rise to hardwired connections between continents, countries, and people in order to connect electronic forms of transmission with reception of the coded information. The speed of transmission and reception increased many times over the limited forms of optical telegraphy. Distances surpassed those available by optical means and the speed of transmission increased.

The science of electromagnetic radiation enabled a change to wireless methods of transmission, eliminating the limitations of a hardwired connection. The use of fiber optics enabled the development of optical transmission via glass fiber. This opened up high-speed communications for multimedia in an “always on” world of information exchange.

Telecommunications services were often initiated to meet the needs of governments to govern, wage war, defend themselves, and communicate with other governments. The emergence of services for citizens and businesses was an extension of the postal systems of many countries. Government was the customer for large purchases of telephone communications equipment. Data services were added as technology allowed. In the United States in the 1920s, American Telephone and Telegraph (AT&T) operated as a virtual monopoly. One of its divisions, Western Electric, was a primary manufacturer of telecommunications equipment. Until the breakup of the many AT&T Bell system entities in 1974, equipment manufacturing in the United States was dominated by Western Electric, while in Europe each country had a dominant supplier like Alcatel, Nortel, Siemens, Marconi, or L. M. Ericsson. In Asia, European companies had licensee manufacture arrangements or European equipment was imported by government entities to deploy their systems. Japan started its own companies and had its own standards for telecommunication equipment.

Equipment during the Industrial Revolution was characterized by large manual switchboards with many operators connecting calls to the wired network as requested by callers. Electromechanical switch bays replaced this type of equipment. Many jobs were created to manufacture, install, and maintain large clickety-clack bays of equipment in central office locations. Third-generation equipment before the age of computers employed electronic switches: complex bays of electronic modules created connections in unattended buildings with high requirements for environmental conditioning and maintenance. For equipment manufacturers around the world, this was the heyday of design, manufacture, installation, and maintenance. Rolling out this infrastructure to Asia and the developing world created the illusion of an industry that would just keep growing.

Wireless transmission technology in the twentieth century forever changed telecommunication equipment. Radio and then television broadcasting demonstrated the ability to transmit traditional voice and data traffic wirelessly over microwave links, then up and down to satellites across continents. This technology set the stage for the contemporary evolution of the industry. The construction of terrestrial microwave link stations and interface gear to the wired network created a rapid growth in manufacturing in the 1950s and 1960s. Then, it was found possible to connect satellite communications not only to microwave links but also through an underground cable network, connecting people across the world like never before. A communications signal would traverse many forms of equipment and over a combination of wired and wireless technology to its destination.

The environment for telecommunications service providers of the twenty-first century continues to evolve rapidly while providing simpler and more comprehensive solutions to customers than before. Equipment reliability and flexibility requirements for wireless communications are escalating to provide quality services anywhere and all the time.

The Industry Today

Today, the profile of companies in the industry is changing quickly. In 2005, British Telecom announced the replacement of its traditional public switched telephone network with a next-generation multimedia infrastructure. Four of the ten suppliers named in that announcement were better known as computer companies. (One of the selected ten telecommunications equipment suppliers declared bankruptcy after the announcement). In the United States, there is an ongoing shift by consumers to abandon services from traditional telephone companies and depend solely on cell phones. Information technology merging with telecommunications technology has enabled a new world of always-on and always-connected devices and consumers. Equipment is more computer-like and less telecommunications-like.

Equipment, therefore, has a completely new complexion. Most television station transmission and signaling is digital, managed by computer-based programming. Unattended radio stations are the norm. Cable and satellite systems provide telephone, Internet, and television services. Streaming services and pay-per-view bring on-demand programming into homes over Wi-Fi or fiber-optic cables. Music, publishing, and video conferencing are increasing requirements for equipment performance in both the wired and the wireless world.

The old design and manufacturing model was a large company decentralized into the countries it served. This met needs for distribution and design for the unique requirements of standards for that market. National pride and provision of jobs locally were the standard in the twentieth century. Many countries had their own unique telecommunication equipment manufacturers. In the late 1990s, technological advancements, Internet protocol technology, privatization away from government monopolies, and opening of markets to competition caused the globalization of equipment vendors. In addition, vendors have become telecommunication carriers themselves by becoming integrators of end-to-end solutions.

Old line equipment manufacturers have become shadows of themselves. The financial crisis of 2007–2009 added to the downfall of established firms, and the environment for start-ups has also been dismal. Suppliers have had to favor standards-based solutions (as opposed to proprietary ones) through loosely defined partnerships. The term “next generation” is used widely. That is a transitory term, as 3G networks competed with 4G networks, and in the 2020s 5G networks, and the lifetime of technology nomenclature can be a year or less. The demanding economic environment is forcing a rapid decline in what infrastructure providers can charge for services. Aggressive pricing requirements are forcing a restructuring of core business definitions for equipment suppliers. Technology shifts are forcing traditional manufacturers to adapt their own technology or acquire new technology companies.

An equipment supplier under siege today must deal with the necessity of finding core competencies, create least-cost operations, provide professional services, and demonstrate the ability to integrate products and manage network operations. Surprising to many in the business was the demise in 2009 of a traditionally excellent supplier, Nortel. Consolidations and mergers of traditional players will lead to the emergence of many new competitors, many of them from the computer industry.

Increased use of the wired environment through compression techniques and encryption requires equipment more common to the computer equipment industry. Network management today is akin to the structure of computer networks more than the telecommunication network topologies of the past. Requirements for redundancy, network monitoring, and high-speed data reliability are increasing the use of traditional incumbent local exchange carriers (land based and undersea). Incumbent local exchange equipment is changing to a new world of information technology.

In parallel to wire lines, there now exist cross-country, undersea, and cross-continent fiber-optic networks for telecommunications. Equipment is structured around a new language of encoders, optical cable splicing, computer information encryption techniques, and standards. Existing networks, both over land and undersea, have a lot of unused capacity to be exploited with new technology.

Wireless can be used over land and via satellite. Already enjoying the evolution of the use of cellular technology, WiFi and the related WiMAX technology provide customers with telecommunications service virtually anywhere and anytime. Wireless equipment and information encryption use techniques from the field of computer information network technology.

The need for equipment providing the key components for transmission paths, network management and monitoring, automated traffic management, and billing is creating opportunities for new entrants, as well as traditional network and computer equipment companies. Global equipment suppliers, therefore, are changing from build-it-yourself companies to integrators of multivendor systems. Their advantage is their traditional presence and penetration of existing markets, along with staying power and financial strength to implement systems. Cisco Systems is an example of taking this to a new level. It is now a systems supplier creating infrastructure for new cities in China. Equipment not only for telecommunications but also for process control, video conferencing, and energy management for sustainable environmental monitoring are part of the new age for a computer component supplier of the twenty-first century.

The fast buildup of wireless Internet is changing the profile of revenue streams from traditionally defined equipment suppliers to suppliers recording revenues in the information technology sector. Two suppliers in China, Huawei and ZTE, emerged quickly with help from capital supplied by the Chinese government for large projects. Their emergence has changed the landscape for European and American companies. China Telecom could itself become a primary bidder in countries around the world, especially developing countries, as has been seen in their participation in major steel, mining, and seaport projects in the twentieth century. There is an opportunity for technology start-ups to gain traction and attention quickly, and be acquired. Cisco has had a history of acquiring up to twenty-five companies per year. Midsize equipment companies are those with a critical technology that is publicly held; they are always a target for acquisition. Required skills will include being able to work with the large companies with market presence, providing end-to-end solutions and financing.

Industry Outlook

Overview

The use of handheld and mobile devices instead of wire line-based services has experienced an exponential growth rate. Subscribers shifting exclusively to their cell phones and abandoning their land line phones are increasing. The opportunity for the traditional plain old telephone service providers and equipment manufacturers is to shift the usage of that installed infrastructure to higher-speed services. Using higher-speed interfaces to their wire line structure as well as coded information devices will open new markets to them for data transmission.

In 2009, precipitous drops in shipments of telecommunications equipment were in the range of 24 percent. Looking inside that overall number, it is clear that the wireless and broadband increase in shipments helped to keep that number from being even larger. The rapid expansion of broadband wireless network equipment has come from the computer equipment sector. Many of the standard names shipping this equipment are Cisco, Juniper Networks, Huawei, ZTE, IBM, and Hewlett-Packard. Smaller equipment manufacturers are classified in the electronic component and network device sector of NAICS reporting.

Therefore, the outlook for the telecommunications equipment industry is changing for three reasons: response by industry and governments to economic upheaval and shifting investments in telecommunications infrastructure; rapid shift to wireless broadband technologies; and shift in technology to chip integration, software, and network data management technology. What lies ahead in terms of applications in the way people of the world interact, conduct business transactions, and communicate with their governments is very exciting. Therein lies the very definition of telecommunications. Equipment and software providers of the future will be defined by new entrants, shifts in business by existing companies, and the adaptability of traditional telecommunications equipment providers to add new capabilities.

The global COVID-19 pandemic saw changes in the way people used technology, notably smartphones. People heavily relied on videoconferencing services to work, go to school, stay in touch with friends and family, and attend virtual events such as concerts and exercise classes. Selling to consumers through business transactions coupled to video (real estate, travel destinations, or automobiles) with high-definition quality of video available twenty-four hours a day, seven days a week is a high growth area. Video technology for telecommunications providers is another niche for growth or acquisitions.

Consumers expect wireless hot spot access to their portable devices (such as smartphones, laptops, and tablets) now. Wireless data available through the implementation of new networks expanding coverage over many miles, instead of over a few feet (wireless hot spots), will grow expectations of pervasive computing available anytime and anywhere. Because this allows simultaneous connection to multiple networks, the horizon will open up to collaboration amongst systems and users on common topics or commercial transactions that are currently limited by distance and technology. High definition for images (digital cameras), full-flow video, and text will allow us to be right next to the person to whom we are connected. What a distance the industry has come from peering into the optical telescope on a clear day to communicate over a few miles. Telecommunications equipment providers for today’s market will include technologies of computing, software, 5G network wireless technology, and applications not yet seen. Will this equipment come from innovators, existing equipment manufacturers, or companies not yet defined in this business? Major technology companies such as Apple and Google have already blurred the lines between telecommunications hardware and other products and services.

Employment Advantages

With a projection of continued expansion of wireless services, new employees entering the telecommunications equipment manufacturing sector can expect exciting challenges and rewards. It is important to search within the computer manufacturing sector for divisions which supply telecommunication network and interface device infrastructure, as well. The challenges will be to hone technical skill sets and adapt business skill sets as the form of manufacturing continues to change to a combination of outsourced and in-house manufacture. Marketing and sales skill sets will be needed to work with nontraditional customers where an application, not just technology, is important.

The spread of applications is keeping intense pressure on the telecommunications manufacturing industry to respond and grow. It is also an industry that is international in nature as manufacturing will be subcontracted to other countries. Technical schools, colleges, and universities are adding course work in the fields of transmission and as a result draw new students to where they know their graduates can find employment. Graphics, video, television, live meetings, voice and image transmission, information compression on wire and wireless networks are all subjects of study leading to entry into the field of leading applications and technologies.

There are exciting prospects for expansion now, such as increased usage of the satellite, wired, and wireless infrastructure for large-area coverage of wireless connections (building on technologies such as WiMAX). These will likely be eclipsed with new terminology in short order. The environment is a constantly moving window of change, and the challenge will be to renew one’s skills to stay at the crest of the wave.

Annual Earnings

The market research firm First Research estimated global spending on telecommunications equipment at $4.5 trillion in 2024, with revenues for the US telecommunications equipment manufacturing industry at about $2.9 billion. Earnings of individuals in the industry range widely depending on the position and company, from factory workers on the low end to senior executives on the high end. Computer hardware, semiconductor, and software companies also participate in the growth seen in the telecommunications industry.

Bibliography

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Business Communications Review. New World Telecom: A Survival Guide for Global Equipment Suppliers, September, 2005.

Courcoubetis, Costas. Pricing Communication Networks: Economics, Technology, and Modelling. Hoboken, N.J.: John Wiley & Sons, 2003.

Gruber, Harold. The Economics of Mobile Telecommunications. New York: Cambridge University Press, 2008.

Huurdeman, Anton A. The Worldwide History of Telecommunications. Hoboken, N.J.: John Wiley & Sons, 2003.

Laffont, Jean Jacques. Competition in Telecommunications. Cambridge, Mass.: MIT Press, 2001.

Plunkett, Jack W. Plunkett’s Telecommunications Industry Almanac 2019. Houston, Tex.: Plunkett Research, 2018.

"Telecommunications Equipment Manufacturing Industry Profile." First Research, Dun & Bradstreet, 4 Mar. 2024, www.firstresearch.com/Industry-Research/Telecommunications-Equipment-Manufacturing.html. Accessed 25 Sept. 2024.

U.S. Bureau of Labor Statistics. A New Approach to Classifying Industries in the Information Sector, May 2009. www.bls.gov/opub/btn/archive/a-new-approach-to-classifying-industries-in-the-information-sector.pdf. 25 Mar. 2024.