Telephone and Telegraph Apparatus

SIC 3661

Companies in this industry

Industry report:

This industry covers establishments primarily engaged in manufacturing wire telephone and telegraph equipment. Included are establishments manufacturing modems and other telephone and telegraph interface equipment. Establishments primarily engaged in manufacturing cellular radio telephones are classified in SIC 3663: Radio and Television Broadcasting and Communications Equipment.

Industry Snapshot

While the telecommunications equipment manufacturing industry was strong and growing in the late 1990s, by the early years of the twenty-first century's first decade, conditions had deteriorated. Ambitious infrastructure build-outs during the prosperous 1990s did not meet anticipated demand. For telecommunication service providers, this led to overcapacity and high levels of debt. By 2003 a number of providers had declared bankruptcy or were in poor financial shape. Subsequently, capital investment dropped considerably, which was bad news for telecommunications equipment companies. In 2005, several mergers and acquisitions among major telecommunications companies were in progress or in place, which negatively affected network equipment and core technology sales.

The Telecommunications Industry Association (TIA) reported that in 2001, the industry experienced a drop in revenue for the first time in a decade, and that decline continued in the next two years for a cumulative decline of $30.5 billion. The equipment sector shipped $21.4 billion in products in 2003 and continued to fall to $19.8 billion in 2008. The U.S. Census Bureau reported the telephone apparatus manufacturing sector was valued at $7.6 billion in 2009 and $8.1 billion in 2010, a reflection of the struggling global economy.

Into the middle years of the first decade of the 2000s, the industry continued to change in response to rapid advances in technology after the deregulation of the telecom services industry. The shift from analog transmission to digital was virtually complete. The next phase in the evolution of communication networks, the shift from separate networks for voice and data to a single network for both, was underway, prompting the leading companies in the industry to focus on being ready for the coming converged network rather than only one kind of network. However, by 2003 the movement toward "convergence" had not materialized as expected. Within the corporate sector, many firms continued to work with the traditional networks that affordably met their needs instead of investing in new infrastructures. The deregulation of the telecommunications services industry enabled service giants such as AT&T to diversify their offerings, which expanded the market for equipment. Moreover, the explosive growth of the Internet created demand for further advances in equipment.

Organization and Structure

The telephone and telegraph equipment manufacturing industry is divided into the two broad categories: service carrier network equipment manufacturers, who sell telephone switching and switchboard equipment primarily to local and long distance phone companies, and end-user or enterprise equipment manufacturers, who sell data and voice communications equipment, facsimile equipment, call/voice processing equipment, consumer communications electronics, private branch exchanges (PBX), and videoconferencing equipment to businesses and residential users. Nevertheless, by the end of the 1990s, significant changes were taking place in the telecommunications industry that blurred these distinctions. The convergence of voice communication networks and data networks made technological changes possible. In addition, some consolidation took place as industry leaders acquired or established partnerships with smaller companies that had particular technological or marketing strengths. As a result, industry leaders began manufacturing equipment for all segments of the telecommunications market. Small start-up companies, created around a particular technological advance, were also an important part of the industry because they were the source of important innovations. Such companies were often targeted for acquisition by a larger company in the industry.

Background and Development

American Samuel F. B. Morse introduced the first commercially successful telegraph in 1844. "What hath God wrought?" was the first message transmitted on the 37-mile pole line between Baltimore, Maryland, and Washington, D.C. Under Morse licenses, open-wire pole lines were soon erected all over the United States and Canada.

Alexander Graham Bell patented the telephone in 1876, beating Elisha Gray by a matter of hours. The technology was immediately put to use in telephone systems by the National Bell Telephone Company (originally the Bell Telephone Company). Western Union Telegraph Company also began offering phone service, using technology developed by Gray and Edison. As a result of an out-of-court settlement in a patent dispute, Western Union sold its phone operations to Bell in 1879. Bell also purchased its manufacturing arm, which became the Western Electric Company.

Bell's phone service was immediately popular. By March 1880 there were more than 30,000 U.S. telephone subscribers and 138 telephone exchanges. By 1887, just 10 years after the commercial introduction of the telephone, there were more than 150,000 subscribers and about 146,000 miles of wire. In addition, nearly 100,000 people had phone service in Europe and Russia.

Developments in the switching equipment were necessary to make this growth possible. Before the first switchboard was installed in Boston in 1877, one telephone had to be directly connected to another in order to make a call, and 1,000 connections were necessary for 50 telephones to call each other. In 1891, American Almon B. Strowger patented the first automatic switchboard. As telephone services proliferated, the demand for long-distance services grew, and Bell established the American Telephone and Telegraph Company in 1885 as its long-distance subsidiary. Important equipment and wire advances allowed commercial service to begin between Boston, Massachusetts and Providence, Rhode Island by the 1890s. Distances gradually increased with the introduction of equipment like relays, loading coils, amplifiers, and repeaters. Radiotelephone service to Europe was established in 1927, but large-scale wire-line telecommunications were not available until 1956 when the first transatlantic cable was completed.

Broad patent rights enabled the National Bell Telephone Company, which became the American Bell Telephone Company in 1878, to completely dominate the telephone service and equipment industry. Bell built a nationwide network by licensing local operating companies to deliver service for 5 to 10 years. Bell received $20 per phone each year and reserved the right to buy the local network at contract expiration. Although Bell's patent rights terminated in 1894, only a few independent companies emerged as competitors. By 1899, Bell maintained a network of 800,000 lines.

AT&T became the parent company of the Bell system in 1899 and grew steadily through the first half of the century. Demand surged during the 1950s and 1960s, with an influx of new products, services, and technological breakthroughs. Despite pressure by anti-trust regulators to cede its market dominance, AT&T continued to grow in the 1960s and 1970s, becoming the largest company in the world. In 1974, however, anti-trust suits filed separately by MCI (now MCI WorldCom) and the Justice Department signaled an end to the company's unfettered reign. Ten years later, the monopoly was finally broken when AT&T was divided into eight smaller companies.

Prior to the 1980s, business telecommunications were more or less straightforward. Services were provided by AT&T with its undisputed monopoly as the carrier of voice, data, and text communications. Large business users had private branch exchanges (PBXs) for internal and external voice traffic, telex machines for instantaneous transmission of text, and dedicated data lines for communications with mainframe computers. Small businesses used key telephone systems and facsimile machines.

Progress in microelectronics and the deregulation of the telecommunications structure in the United States changed everything. The boundaries between computing and telecommunications became blurred. With the advent of the Integrated Service Digital Network (ISDN), the telecommunications network no longer had to separate voice, text, data, and image traffic. Everything could go over the wire or fiber optic cable in bits. There could be a uniform ISDN plug for telephones, computers, and fax machines. Personal computers not only became more powerful, but also had the potential to double as telex and data communications terminals, as fax machines, and as telephones and telephone answering machines. Electronic data interchange (EDI) had the potential to eliminate forms completed in duplicate and triplicate. Videophones would bring the person at the other end of the line right into the office.

Changes in telecommunications regulations since the early 1980s also transformed the way telecommunications developed. Competition in network provision improved the quality of traditional services. Waiting lists for business and residential voice and data lines fell dramatically. Telecommunication and equipment prices also declined. New telecommunication-based services sprang up, not only bringing revenue to telecommunication operators and the information providers, but also generally enhancing the value of business operations. Even domestic users with Touch-Tone telephones began to use network-based facilities that 10 years earlier were only affordable for users with sophisticated communications equipment.

Central Office Switching Systems.
When large scale integrated circuits were perfected in the 1970s, it became technically feasible to develop a digital switching network to replace the electronic network in central offices. Modern central office technology had a digital switching network controlled by a programmable central processor. Switching systems routed calls between themselves and selected terminating stations with station addresses that consisted of a three-digit area code and a seven-digit telephone number in the United States. A country code was added for overseas locations.

Centrex.
Before the arrival of microelectronics and PBXs, large companies were reluctant to place switching systems on the premises to provide private branch exchange service. Centrex was a PBX-like service furnished by the local telephone company through equipment located in the central office. Centrex features allowed direct inward dialing (DID) to a telephone number and direct outward dialing (DOD) from a number without operator intervention. For calls into the Centrex, the service was equivalent to individual line service. Outgoing calls differed from individual line service only in the requirement that the caller dial an individual access code (usually 9). Calls between stations in the Centrex group required four or five digits instead of the seven digits required for ordinary calls. An attendant position located on the customer's premises was linked to the central office over a separate circuit. Centrex service provided PBX features without locating a switching system on the user's premises.

Customer Premise Equipment.
In the mid-years of the first decade of the 2000s, this category included all the equipment that made up the customer's network, including a telephone handset or a network of thousands of phones, computers, fax machines, and other terminal equipment, as well as the wires, cables, routers and switches that connected them.

Key Telephone Systems.
Key Telephone Systems (KTS) were not high-technology products compared to radio, satellite, and fiber optics, and they did not have the technical appeal of a PBX, but they were the workhorses of U.S. business. Like other customer premise products, KTSs evolved from wired logic and electromechanical operation to stored program or firmware control. In the process, they adopted many features that were once the exclusive province of PBX. The Electronic Key Telephone System offered most of the features of a PBX, especially the hybrid version, which was a cross between a PBX and a Key System. The distinction between the KTSs and PBXs became more blurred as technology brought increased intelligence to the KTS. The distinction was blurred additionally as some manufacturers made Key Telephone instrument lines compatible with PBX lines, allowing a company to outgrow its KTS and move to a larger, more sophisticated PBX.

Private Branch Exchanges.
In the mid-years of the first decade of the 2000s, many organizations operated private telecommunications systems. These systems ranged in size from the federal telephone system, which was larger than the telecommunications systems in some countries, to small private branch exchanges (PBXs). Nearly every business with 30 to 100 stations was in the market for a PBX or its central office counterpart, Centrex. PBXs were economical for some very small businesses in need of features that most key systems did not provide, such as restriction and least cost routing. They also were economical for very large businesses that had PBXs using central office switching systems of a size that rivaled many metropolitan public networks. Most PBXs could be mounted in a cabinet on the premises of the business user and could operate without air conditioning in an ordinary office environment.

The office PBX increasingly controlled private voice networks. As the network evolved to become all digital, so did the PBX in all but the low-end systems of 100 stations or fewer, which remained analog. The advent of the T-1 carrier as the preferred transmission medium was the principal force that drove the evolution of the PBX. Long distance carriers made it increasingly attractive for business users to bypass the local central office by using T-1 trunks directly to the long distance carrier's central office. The cost of T-1 service for PBX lines was particularly advantageous when data transmission facilities paralleled the route of voice. The integration of voice and data reduced the cost of access lines to the outside world.

Call/Voice Processing Equipment.
Several converging forces increased the importance of incoming call management systems. First, there was the increasing use of telemarketing. A telemarketing center typically had banks of 800 numbers with different numbers associated with different product lines or promotions and different agents with access to various databases to handle callers' questions. A caller distribution system was needed to direct incoming calls to the appropriate agent. In addition, most incoming 800 calls were delivered via T-1 technology that required calls to be routed to the appropriate party when they reached the customer premise. Finally, call distribution technology advanced to the point where telephone and computer operations basically merged. Any organization with more than a few answering positions found that the cost of some machine-controlled call distribution paid for itself quickly.

A uniform call distribution system (UCD was a standard feature of many PBXs that often significantly improved call handling. The stand-alone counterpart of a UCD was the call sequencer. This device could work with a PBX or key telephone system or could be connected directly to incoming lines. Unlike the UCD, a call sequencer did not direct calls, but it alerted agents to the presence of incoming calls. The most sophisticated device was an automatic call distributor (ACD), which could either stand alone or integrate with a PBX. An ACD directed calls to the least busy agent to equalize the workload. The ACD administrator typically had a video display terminal that presented call statistics in real time and had many management tools that monitored and improved service and measured agents' effectiveness. Any organization that had a large number of incoming calls targeted for service positions was a potential ACD user. This included departments that handled mail orders, literary delivery, inquiries, field service, credit, and collections.

Modems.
Like other types of telecommunications equipment, modems became faster, less expensive, and smarter. The ready availability of inexpensive personal computers expanded the demand for modems, and in the mid-years of the first decade of the 2000s, the two types of modems that essentially made up the market were dial-up modems and private line modems. Dial-up modems either plugged into a personal computer slot or were self-contained devices that plugged into the computer's serial port. Many of the dial-up modem's features were designed to emulate a telephone. These features included dial tone recognition, automatic tone and pulse dialing, monitoring call progress tones such as busy and reorder, automatic answer, and call termination. These items were priced on a commodity basis and used the public network for the transmission of information. Private line modems worked exclusively with voice and data private lines, and although they had the same functions as a dial-up modem, they were not as popular.

At the beginning of the twenty-first century, many data applications were naturally incapable of fully using a data circuit. Rather than flowing in a steady stream, data usually flowed in short bursts with intermittent idle periods. To make use of this idle capacity, data multiplexers were employed to collect data from multiple stations and create a single, high-speed bit stream. The two types of data multiplexers were time division multiplexers (TDM) and statistical multiplexers (statmux). In a TDM, each station was assigned a time slot and the multiplexer collected data from each station in turn. If a station had no data to send, its time slot went unused. A statmux made use of the idle time periods in a data circuit by assigning time slots to pairs of stations according to the amount of traffic they had to send. The multiplexer collected data from the terminal and sent it to the distant end, with the address of the receiving terminal minimizing idle times between transactions.

Analog or frequency division multiplexers also were available to divide a voice channel into multiple segments for data transmission. Their primary use was to connect multiple, slow-speed data terminals over voice channels. A concentrator was similar to a multiplexer except that it was usually a single-ended device that connected directly to a host computer. The primary application for multiplexers was in data networks that used asynchronous terminals. Since many of these items could not be addressed and had no error correction capability, they were of limited use by themselves in remote locations. The multiplexer provided end-to-end error checking and correction and circuit sharing to support multiple terminals.

Facsimile Equipment.
In the 1990s, facsimile (fax) equipment became an indispensable business machine essential to the everyday transactions of most businesses. The fax machine worked by scanning the printed page, encoding it, and transmitting a facsimile of the images in shades of black and white without identifying individual characters. Facsimiles conveyed text as well as graphic information, so source documents could be retransmitted without re-keying. Fax transmissions were less affected by transmission errors than other types of data communication and had the added bonus of speed. Some facsimile machines doubled as printers and copiers.

Telephones.
The two categories of telephone sets offered were general purpose sets or corded phones and special purpose telephones, such as coin-operated telephones. The price of general purpose sets was often a clue to quality. Many inexpensive instruments provided poor transmission quality and failed when dropped. At the high end of the scale, price usually was a function of features or looks. Single-line phone sets were replaced by feature phones with many more characteristics and capabilities than previous models. In the late 1990s, cordless telephones gained wide consumer acceptance with an estimated 40 percent household penetration in the United States. These instruments used a low-powered radio link between a base unit and the portable telephone. Answering machines were still popular home equipment, but technological innovation replaced the traditional stand-alone telephone answering machine connected to a telephone with integrated telephone answering devices. These units included telephone-answering devices incorporated into every piece of communications equipment from basic telephones to cordless integrated answering telephone devices and personal computer systems.

Coin Telephones.
The advent of the customer-owned coin-operated telephone (COCOT) was another byproduct of divestiture that was confusing to many users. In the first years following the dissolution of the Bell System, many private companies saw COCOTs as a potentially lucrative business. The companies that ventured into this market with less than adequate equipment, however, quickly discovered what the local exchange companies (LECs) had long understood: the risks and administrative costs of coin telephones were high, and the companies that entered this market without understanding the hazards could lose large amounts. The two major risks were fraud and vandalism.

Convergence.
A major development at the end of the 1990s was the growing convergence of voice and data networks. Advances in technology, of which the ISDN (Integrated Service Digital Network) was the first evidence, created the possibility for voice traffic to be inexpensively carried over data networks. A standard voice network was circuit-switched, meaning a circuit was established and dedicated to the call as long as it lasted. A data network, on the other hand, was packet-switched, meaning the data were bundled into packets that were transmitted separately, which enabled the system to eliminate silence in the transmission and allowed great flexibility in routing the information. As a result, as many as five to eight simultaneous Internet Protocol (IP) connections could be established on every traditional telephone circuit. A major issue in sending voice over data in 1999 was the voice quality provided by the system, but the quality was expected to continue to improve rapidly. Furthermore, not all customers required the same voice quality.

Deploying one network to handle voice, data traffic, and Internet access had great appeal, although companies with an extensive pre-existing infrastructure did not rush to replace it. According to a 1999 study by Information Week Research, 72 percent of companies operated separate networks for voice, data, and video, while 19 percent had a single network combining voice and data. Only 9 percent had a fully converged network for voice, data, and video. However, 23 percent of the companies contacted for the study planned to use a single network for all three types of traffic within 12 months. A study by Phillips Group-InfoTech reported that nearly 90 percent of companies with multiple sites would begin switching to voice traffic using Internet Protocol over their local area networks (LANs). This report predicted an average growth in this segment of the industry of 138 percent a year for the five years after 1998, which was expected to create a $1.9 billion industry by 2004. The Yankee Group, another marketing research organization, was even more optimistic, projecting a voice- and fax-over-IP services market of $3.6 billion in 2002.

Alternatives to the traditional PBX, called PC-PBXs, were developed at the same time as the convergence of voice and data. Instead of using what was basically a custom-built computer that required custom software and could only be used with specific peripheral equipment and enhancements, PC-PBXs were designed to be regular PC servers. This more open approach allowed greater flexibility and potentially lower costs. Factors that slowed innovation included the slow development of accepted standards and the larger issue of reliability. Telephone customers, especially business customers, were accustomed to "five nine" reliability. That is, 99.999 percent uptime. Such capability was developed over decades of refinement of PBX technology, but the PC-based alternatives had not yet reached that level. At the end of the 1990s, small and mid-sized businesses and branch offices of large organizations were targeted for installation of the new systems.

According to the Multimedia Association, a telecommunications industry trade group, nearly 70 million PBX lines were in use in 1998. During that year, more than 7.5 million were added, and more than $7.5 billion was spent on new PBX systems, a clear indication that the PBX was far from dead.

Bandwidth.
The phenomenal growth in the popularity and business importance of the Internet contributed greatly to the continually growing demand for bandwidth, which is the volume of traffic carried at one time and the speed at which it is transmitted. Technologies were developed that pushed ISDN, a technology never fully exploited in the United States, into the background. The most common type of access used by business at the end of the 1990s was called T1, which provided much greater bandwidth than ISDN, though at a much higher cost. A newer technology, which promised bandwidth equivalent to that of T1 but at a cost closer to that of ISDN or lower, was Digital Subscriber Line (DSL). A number of variants of DSL were being used in 1999, and set standards were being developed. ISDNs continued to be available for customers more than three miles from a telephone company's central office, beyond the range of DSL.

In 2001 the Telecommunications Industry Association (TIA) valued the U.S. market for telecommunications equipment and software at $166.7 billion, down 2.8 percent from the prior year. Voice and data equipment accounted for most of this total ($98 billion), followed by network equipment and facilities ($41 billion), wireless capital expenditures ($19.5 billion), and wireless handsets ($8.2 billion). Of these categories, wireless capital expenditures (6.2 percent) and voice and data equipment (1.2 percent) grew in 2001, while network equipment and supplies dropped almost 14 percent and wireless handsets dropped more than 6 percent. Although not as broad in scope, Value Line's evaluation of the telecommunications equipment industry depicted how revenues within the industry were falling by the early years of the first decade of the 2000s. Value Line reported that after climbing from $23.6 billion in 1999 to $27.9 billion in 2000, industry sales fell to $20.6 billion in 2001.

Although frequently discussed, by 2003 "convergence" had not blossomed as the industry first expected. In fact, some observers partially blamed the mad rush to develop Internet Protocol (IP)-based networks, which were designed to carry applications, data, and video as well as traditional voice communications, for causing some of the industry's woes. While the leading uses for IP-based networks were data and long-distance voice services, those services represented only a fraction of overall telecommunication services spending. In addition, the publication revealed that most companies were continuing with their legacy data networks.

Unified messaging and instant messaging, as well as audio, video, and data conferencing, were among the six leading IP-based services in the mid-years of the first decade of the 2000s. Findings from Insight Research projected that sales of these services would rise to $11.4 billion by 2007. Spending on technology to send voice communications via IP, known within the industry as Internet telephony or VoIP, was projected to fall from over $8.1 billion in 2000 to $7.3 billion in 2002 because it was being adopted slowly. However, by 2004, there were 6.5 million VoIP access lines, and 26 million were projected to be in service by 2008.

The telephone apparatus manufacturing industry shipped products valued at $21.4 billion in 2003, according to the U.S. Census Bureau. The telecommunications industry had $784.5 billion in sales in 2004, of which $15.8 billion was attributed to network equipment and $99 billion was attributed to enterprise equipment. Industry consolidation in the middle years of the first decade of the 2000s was expected to negatively affect equipment manufacturers, as the newly merged companies were predicted to spend even less on core technologies, such as networks. In 2005, three major acquisitions were in process as Verizon was acquiring MCI, SBC was acquiring AT&T, and Sprint was merging with Nextel.

In 2007 there were 391 establishments in the industry, with slightly less than $19 billion of goods shipped, and $10.6 billion spent on materials. There were 30,796 workers that year, 11,340 of whom were engaged in production, earning $499 million in wages.

Current Conditions

According to U.S. Census data, the telephone apparatus manufacturing industry was valued at $7.6 billion in 2009 and $8.1 billion in 2010, a reflection of the global economic downturn. However, according to the Telecommunications Industry Association (TIA), the economic downturn impacted U.S. telecom spending harder, falling 8.2 percent in 2009 compared to a 1.6 percent decline on a global level with a rebound underway in 2010. The equipment sector shipped $27.8 billion in products in 2009 and $28.9 billion in 2010. However, according to U.S. Supplier Relations, the United States had a trade deficit in telephone and telegraph apparatus equipment in 2010 with imports totaling $2.8 billion while exported equipment totaled $1.0 billion.

Demand for "newer-generation" technologies was expected to drive the U.S. market, generating growth by 9.1 percent in 2011 and $42.5 billion in revenue, compared to $38.98 billion in revenue for 2010 followed by a 7.2 percent decline in 2009. In one forward-looking report, IHS iSuppli Mobile & Wireless Communications Service projected that wireless infrastructure equipment revenues will remain in the modest single-digit growth range, exceeding $45.1 billion in revenues for 2015.

According to the TIA, worldwide telecom spending (equipment and services) was projected to reach $4.34 trillion in 2011, followed by $5.31 trillion in 2014. The growth engines driving spending were international wireless and broadband as well as cloud computing services straining networks, forcing operators to make investments, thus fueling demand for a wide range of telecom equipment.

Industry Leaders

Of the world's six leading telecommunications manufacturers in 2007, only Cisco was a U.S. company. Lucent Technologies, formerly of New Providence, New Jersey, was purchased by French competitor Alcatel in late 2006 and renamed Lucent-Alcatel. A third company, Canadian-owned Nortel Networks, held a significant market share in the United States. The remaining industry leaders were European: Alcatel, Siemens, and Ericsson. Lucent and Nortel traditionally focused on equipment for telephone systems while Cisco was the giant of the enterprise network and Internet markets. The increasing convergence of voice and data networks, however, and the explosive growth of data transmission, led these companies to develop products for the converged network, often by buying companies with the products or expertise it lacked.

Cisco Systems of San Jose, California was the number one supplier of computer networking products, holding the majority of market share for routers and network switches. It also was a growing force within the telephone industry. Cisco's 2008 revenues were more than $39.5 billion, up from $22 billion in 2004, and its workforce grew from 34,000 to 66,129 employees. The company grew its revenues to $43 billion in 2011 with 71,825 employees.

Lucent-Alcatel, formerly Lucent Technologies Inc., traced its roots to the very beginning of the telecommunications industry as the manufacturing arm of Western Union and then the Bell system. The R&D unit, Bell Laboratories, was credited with many technological advances, including the very important transistor, whose inventors received the Nobel Prize in 1956 for their invention. In 1996, AT&T spun off Western Electric and Bell Labs as Lucent Technologies. The company reported 2008 revenues of more than $23.9 billion, up from $16 billion in 2006, with 77,717 employees. In 2010, the company' revenues fell slightly to $21.1 billion with a reported 79,796 employees.

Nortel Networks began as the manufacturing arm of Bell Canada, but by the 1950s, a majority of its shares were owned by Western Electric, which was then a subsidiary of AT&T. Bell Canada purchased most of those shares when the U.S. Justice Department forced Western Electric to divest. Northern Electric, as it was then named, was wholly owned by Bell Canada until 1973. The name was changed to Northern Telecom in 1976, the same year that it introduced the first digital switch, which fired its growth into the 1980s. The Toronto-based company changed its name to Nortel Networks in 1999. In 2008 sales totaled more than $10.4 billion, down from $11.4 billion in 2006, with 30,307 employees.

America and the World

The United States has been the leader in telecommunications equipment technology and innovation, primarily because of the monopoly that AT&T (the Bell System) had on the nation's telephone system for the first 100 years of its existence. The breakup of the Bell System in 1984 created a new playing field for telecommunication equipment manufacturers worldwide. Since telephone technology is not drastically different from computer technology and many of the same components and techniques are used in both, competition in this market is global. This factor, coupled with the regulatory barriers harnessing the former Bell Operating Companies, resulted in the United States losing this 100-year advantage almost overnight.

Between 1983 and 1989, U.S. exports of telecommunication equipment increased at a compound annual rate of 15 percent. During this period, imports of telecommunication equipment grew 30 percent. In 1989 the U.S. telecommunication equipment industry had a trade deficit of $2.7 billion, which improved 15 percent in 1990 to $2.4 billion. Low-technology terminal equipment, such as telephones, was the largest component of foreign imports. Foreign producers in the Far East captured this market through lower manufacturing costs. China, Malaysia, and Thailand contributed the most to the market. The U.S. Senate, in response to these developments, passed the Telecommunications Equipment Research and Manufacturing Act of 1991 in an attempt to make the market more competitive.

Although the United States was no longer the dominant manufacturer in the telecommunications equipment market, it re-established itself as an international force during the late 1990s. Despite an enormous overall trade deficit with Japan and other Far Eastern suppliers, the United States did not have a deficit in telecommunications gear. In 1998, U.S. exports of telecommunications equipment were $20.7 billion, 1 percent below 1997 levels. However, imports increased by 19 percent to $17.9 billion. Canada and Mexico were the dominant trading partners for both imports and exports.

According to the TIA, in 2001 telecommunications equipment exports were $25.8 billion, down 7 percent from 2000. That year, Canada was the leading international market, although very strong gains were made in China (46 percent) and Hong Kong (94 percent). Electronic Business reported that exports continued to deteriorate in 2002. When compared to the same seven-month period in 2001, exports were down almost 25 percent in the first half of 2002, reaching $13.2 billion. According to the TIA, imports fell 9 percent in 2001, dropping to $36 billion. Mexico surpassed Canada as the nation's leading international supplier that year.

The telephone and telegraph apparatus manufacturing industry was one of the few manufacturing segments in which the U.S. posted a trade surplus as imports totaled $3.3 billion while exports generated $7.9 billion. The top three importers in 2006 were China at $4 billion of that total, Mexico at $2.8 billion, and Malaysia with $2.4 billion. The Netherlands ($1.7 billion), Canada ($1.2 billion) and Mexico ($795 million) were the top three destinations for U.S. products in this category.

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