Optical sector OK as wireline spending stalls

Compared with last year, spending by North American wireline carriers was down more than 5% in the second quarter and down nearly 7% in the first half of this year, according to Ovum-RHK. The research analysis firm blamed sagging first-half spending mainly on AT&T's digestion of BellSouth but also predicted domestic wireline telecom spending growth to remain “stalled” through this year and the next.

Though that spending outlook looks grim for wireline vendors, the mood is better in the optical sector, which this summer had its best quarter in six years, Ovum said in a separate release.

“We think carriers focused on basic infrastructure and upgrades, not consumer broadband,” said Simon Leopold, an analyst for Morgan Keegan, about first-half spending.

In aggregate, carriers added 1.8 million DSL subscribers in the second quarter, 10% less than they did a year ago. That slower pace might be fine with carriers, which are apparently scrambling to expand their upstream optical networks to make room for all the traffic generated by their current broadband subscribers.

“We've been hearing pretty recently from major carriers feedback suggesting that, by the time these guys install new lambdas, they're pretty much exhausted,” said Tim Savageaux, an analyst for Merriman Curhan Ford. “Bandwidth demand forecasts are pretty rapidly and vastly exceeding what these carriers would have said, say, a year ago.”

Meanwhile, wireless spending in North America is expected to cool somewhat in the second half of 2007 as Sprint and Verizon wind down their CDMA network upgrades. And spending among cable multiple systems operators was up 28% from a year earlier to $3.3 billion in the second quarter, Leopold said, predicting healthy spending in that sector to continue. “The telco-cable war spending continues,” he said.