Radio communication and detection equipment - 1991 U.S. Industrial Outlook

James M. McCarthy

Radio Communication and Detection Equipment

Growth in the radio communication and detection equipment industry slowed in 1990, reflecting continuing pressures to reduce the size of the U.S. budget deficit, as well as dramatic changes in the geopolitical climate. Product shipments by the industry rose about 2 percent in constant dollars, to about $59.8 billion in current dollars. Although no current data are available, shipments to Federal Government agencies are believed to account for nearly half of total shipments.

Before reading this chapter, please see "How to Get the Most Out of This Book" on page 1. It will clarify questions you may have concerning data collection procedures, factors affecting trade data, forecasting methodology, the use of constant dollars, the difference between industry and product data, sources and references, and the Standard Industrial Classification system (SIC). For other topics related to the subject of this chapter, see chapters 22 (Aerospace), 29 (Telecommunications Services), 30 (Telephone and Telegraph Equipment), 32 (Entertainment), and 42 (Space Commerce).

By far the dominant category in this industry, accounting for more than 60 percent of all product shipments, is search, detection, navigation, guidance, aeronautical, and nautical instruments (search and navigation equipment). These products include radar and sonar systems and equipment, navigation systems and equipment, light reconnaissance and surveillance systems and equipment (e.g. infrared and ultraviolet), and electronic warfare equipment. Shipments of these products grew about 3 percent, from $35.5 billion in 1989 to about $36.6 billion in 1990.

Traditionally, domestic demand for search and navigation equipment has stemmed primarily from large-scale, often long-term Government procurements and new military applications. This market stagnated in 1990 due to budgetary pressures, as well as the reduction of defense communications needs resulting from the changing political climate in Eastern Europe and the Soviet Union in late 1989 and 1990. Demand from civilian and foreign markets helped fill the gap.

The next largest category, representing about 27 percent of total product shipments by this industry, is communication systems and equipment, except broadcast. This category includes fiber optic systems, microwave and satellite communication systems, paging equipment, and mobile communications systems. Shipments increased 11 percent, from $13.8 billion in 1989 to an estimated $15.0 billion in 1990. This is the fastest growing segment of the radio communication and detection equipment industry (Figure 1). Leading growth areas include cellular, mobile, and satellite communications systems.

Broadcast, studio, and related electronic equipment includes audio and video broadcast equipment, cable television (CATV) equipment, RF power amplifiers, studio transmission links, and closed-circuit television (CCTV) equipment. Shipments of this equipment remained steady at about $1.9 billion in 1990. This category represents approximately 3 percent of all product shipments by the radio communication and detection equipment industry.

Alarm systems, traffic control equipment, and intercommunication systems include intrusion detection, fire detection and prevention, traffic and railway signal, and intercom equipment. Combined product shipments, which account for nearly 4 percent of the industry total, were steady at about $2.1 billion in 1990.

The group of products known as electronic systems and equipment not elsewhere classified (NEC), includes electronic kits, ultrasonic equipment, particle accelerators, electronic trainers and simulators, and laser systems and equipment. Product shipments remained steady at about $3.8 billion in 1990. This category represents nearly 7 percent of the industry total.

Ten to 15 U.S. firms continued to dominate shipments by the radio communication and detection equipment industry. Many firms announced significant layoffs in response to declines in orders from the U.S. military. However, many of the planned layoffs were delayed pending the outcome of the Persian Gulf crisis. Business acquisitions and mergers continued as companies that had been dependent on U.S. military contracts sought to diversify.

INTERNATIONAL COMPETITIVENESS

International trade is not a driving force in this industry. Exports amounted to about 10 percent of product shipments in 1990, up from 8 percent in 1989. Import penetration as a whole is relatively insignificant. In 1990, total imports were about 6 percent of new supply (defined as domestic product shipments plus imports), about the same ratio as in 1989.

Exports of the industry rose about 21 percent from nearly $5.0 billion in 1989 to an estimated $6.1 billion in 1990. Imports of radio communication and detection equipment increased to an estimated $3.8 billion in 1990, up nearly 3 percent compared with $3.7 billion in 1989.

Radio and television broadcasting and communication products (SIC 3663) dominate international trade, accounting for more than 60 percent of exports and about 75 percent of imports in 1990. Search and navigation products (SIC 3812) followed, with 30 percent of exports and 20 percent of imports.

The major foreign markets in 1990 were Canada, 11 percent; Japan and the United Kingdom, 10 percent each; Mexico, 9 percent; and Germany and Brazil, 4 percent each. These six countries accounted for nearly half of total U.S. exports. The most significant product exports were parts for radio telegraphic and telephonic equipment, accounting for 17 percent of the total; communications satellites, 12 percent; parts for radar, 7 percent; radio and television transmitters (not elsewhere specified) 6 percent; and radio transmitters over 400 MHz and radar, 5 percent each.

For imports, Japan continued to be the largest foreign supplier in 1990, accounting for nearly 30 percent of the total. The next most important sources

of imports were Canada, 11 percent; Mexico, 8 percent; Taiwan, 6 percent; and Korea, 5 percent. These five countries accounted for nearly 70 percent of total imports. The major products purchased from abroad are cable and closed-circuit television equipment, 13 percent; transmitters, 10 percent; parts for radio telephonic and radio telegraphic equipment, 9 percent; and cellular telephones, 7 percent.

Outlook for 1991

The value of industry shipments by this high-technology industry should increase about 2 percent, in constant dollars. Domestic demand for military electronic equipment should decline further in response to budgetary constraints, but may be partially offset by new demand arising from the Persian Gulf situation. Exports of radio communication and detection equipment should increase moderately, while imports increase slightly.

Long-Term Prospects

Technological Developments

The 1990s hold great promise for new improvements in search and navigation technology. Two of the latest developments - advanced phased array radar and laser radar - appear to be the most advanced technological improvements in the radar industry, as well as the most promising.

Advanced phased array radar, an active electronically scanned array (ASEA), will not only perform the traditional search and detection functions associated with conventional radar, but also could potentially support other radio frequency (RF) functions such as wider bandwidth and greater beam agility. Although the concept of electronically scanned arrays has been understood since World War II, the development of the transmit/receive (T/R) module in the 1980s allowed ASEA to become a viable alternative to mechanically scanned systems. The most important characteristics of an ASEA - and its advantages over conventional radar - include greater reliability through "graceful degradation," reduced radar cross section (RCS), lower probability of intercept and electronic beam agility.

Laser radar (LADAR) also holds promise. The range-imaging laser radar combines conventional radar and video imaging with capabilities that include the best features of both systems. A LADAR system operates by shooting a beam of laser light toward a target while simultaneously starting a timer. The light hits the target and reflects back to the sensor, and the timer stops. The onboard computer remembers the time of transit and position of each return pulse. The computer then converts this information into a false color three dimensional range image in which the target appears in a multicolored field. The field carries gradients and changes in color to indicate distances. LADARs are useful where target recognition requires both range and image. The combination allows the operator to better differentiate between a real target and a decoy. Range-imaging LADAR could have applications in conventional weapons systems that perform automatic target recognition or aimpoint refinement. It also has potential civilian applications in robotic vision, collision avoidance, and autonomous vehicle-control systems.

Defense Communications

The performance of the radio communication and detection equipment industry is highly dependent on its dominant segment, search and navigation equipment. Domestic demand for search and navigation equipment is expected to remain flat for the foreseeable future, due in part to the Defense Department's objective of reducing expenditures 25 percent by 1995. Most domestic demand will consist of upgrading defense and early warning systems already in use by the U.S. military. The development of new Stealth technology, as well as the expected production and deployment of the Advanced Tactical Fighter (ATF), have created several advancements in radar and radar-related equipment. Search and detection systems used in aircraft such as the B-2 and the ATF may be used in other aircraft as well as naval vessels in the near future. Conversion from two dimensional to three dimensional radar, advances in gallium arsenide (GaAs) technology, and the increased use of advanced-phased array radar systems as well as laser radar are expected to result in the replacement of conventional, mechanically scanned radar systems now in place. Upgrading of current search and navigation systems with new, state-of-the-art defensive technology will probably make up the bulk of domestic demand for this part of the industry for at least the first half of the 1990s.

New demands in the international market could partially offset any decrease in domestic demand. The changing geopolitical climate may allow new markets to open for the defense communications industry. The Coordinating Committee on Multilateral Export Controls (COCOM) will probably further relax export restrictions on sales of radio communication and detection products to Central and Eastern Europe as countries in these regions continue to enact political reforms and move closer to market-oriented economies. Many of these countries are in dire need of improved aviation and communications equipment to replace their antiquated systems.

Furthermore, procurement of search and navigation equipment within countries belonging to the North Atlantic Treaty Organization (NATO) should still provide a viable market, at least in the short-term. Although NATO may be experiencing some "adjustment problems" as it adapts to the changes occurring in Europe, several projects are expected to receive approval for deployment in the near future. For example, invitations for firms to bid on the multibillion dollar Air Command and Control System (ACCS) are still expected to be released, although the offensive capabilities (targeting incoming enemy aircraft, for example) will probably be reduced. ACCS will allow many NATO countries to update their aging command and control (C2) systems, providing U.S. firms the opportunity to bid on potentially lucrative contracts for radar systems and related search and navigation equipment.

Until recently, the consensus was that over the next five years there would be a gradual shift away from the domestic market toward the international market for search and navigation equipment, as a result of defense cuts. However, the Persian Gulf crisis cast doubt on any long-term forecasts for the radio communication and detection equipment industry (Figure 2). Operation Desert Shield could spark renewed increases in domestic defense spending, particularly if present short-term U.S. military maneuvers in the Gulf become a long-term U.S. commitment.

Firms in the communications and electronics fields may be least affected by defense cuts. A majority of the cuts proposed are geared toward nuclear weaponry and strategic hardware that most communications and electronics firms do not directly manufacture. However, given the Defense Department's objective of reducing the defense budget 25 percent by calendar year 1995, it is safe to say that all firms with interests in the defense field will feel the effects of smaller defense budgets.

Before the tumultuous political upheavals in Eastern Europe that began in late 1989, defense purchases of radio communication and detection equipment were projected to remain relatively stable during the first half of the 1990s. Future spending on these products was expected to increase by a modest average of almost 0.5 percent annually between 1988 and 1994. Projections made after the events in Eastern Europe, however, predict a different scenario. Based on 1990 data, defense expenditures for radio communication and detection equipment are expected to decline by an average of 2.62 percent annually for the years 1991 through 1994. These figures indicate that even relatively stable and secure defense sectors such as the radio communications and detection equipment industry will be adversely affected by the impending reductions in defense spending.

As the U.S. defense budget shrinks, domestic defense markets will become tighter. Communications firms have begun to look toward the international and civilian markets for new contracts in radio communication and detection equipment. Many countries in regions such as South America, Southeast Asia, Southern Europe, and especially Central and Eastern Europe, are in desperate need of modern communications equipment as they begin to upgrade their civilian aviation and communications systems. Firms formerly involved in defense communications may welcome these new civilian markets for aviation and nautical equipment as the domestic defense market becomes smaller. However, the military action taken by the U.S. in the summer of 1990 in the Persian Gulf (Operation Desert Shield) may distort all present defense expenditure predictions. If U.S. forces remain in the Gulf after the current crisis is resolved, there may be a call for renewed increases in defense expenditures in the 1990s.

The Civilian Market

The evolution of the next generation of wireless communications services, spurred by the application of digital radio transmission techniques in 1990, is likely to generate strong new demand for radio communications equipment over the next 5 to 10 years. However, the development and subsequent growth of this market depends on the timely resolution of key technological, spectrum allocation, and licensing issues.

The implementation of digital cellular in 1991-92 will be the first major step in the evolution of mobile communications services. Even before digital cellular is implemented, the industry is turning toward the next generation of wireless, or "personal," communications. In the longer term, digital cellular may serve as the basis for integrating several existing and future cellular, paging, cordless, and even satellite services that are not efficiently networked today.

Dozens of companies in the United States, Europe, and Japan are investing large sums to develop novel types of mobile communications services. Although all the services are wireless, each employs a different technical method and different network structure. The two services receiving the most attention from manufacturers and service providers are personal communications networks (PCNs) and Telepoint (CT-2). Both target market opportunities growing out of the relatively high cost of today's cellular service.

In PCNs, the subscriber loop is replaced by low-power digital radio links in "microcells" about 200 meters in radius. The small radius permits the use of extremely low-power portable handsets - 10 milliwatts, compared with 600 and 3000 milliwatts for current portable and vehicular cellular phones, respectively. The low-power requirement of PCNs means smaller batteries and microminiaturized components that will make possible pocket phones about two-thirds the size of the smallest portable cellular phones available today.

PCNs are designed to serve users on the street, and in offices and homes. However, they will not be capable of serving vehicular users, and will be uneconomical in low-density rural areas because of the high number of microcells required to cover large areas. As a result, PCNs will be both complementary and competitive with cellular, which is nationwide and effectively handles vehicular users.

The British initiated the PCN concept and have licensed three operators to begin service by the end of 1992. The operators intend to use a variant of Europe's digital cellular technology adapted for 1.8 GHz. In the United States, potential operators are evaluating the technical and economic feasibility of PCN service, and have submitted 11 applications for experimental licenses to the Federal Communications Commission (FCC). U.S. PCN proponents are exploring a variety of technical alternatives. The most promising thus far appears to be a type of spread-spectrum technology known as Code Division Multiple Access (CDMA), which was originally developed by the U.S. military to protect radio communications. CDMA, which is also being considered for digital cellular and CT-2, claims very high call-carrying capacity (20 times that of analog cellular) while being able to coexist on the same spectrum as other services. It operates by transmitting a series of voice signals simultaneously in bursts spread over a wide bandwidth and assigning each burst a unique binary code. The receiver sorts the bursts by code and reconstructs the intended voice signals. The pioneer of CDMA, Qualcomm, recently signed a joint venture with the French radio giant, Alcatel, to promote CDMA spread-spectrum in Europe.

CT-2, or telepoint, refers to a related but much smaller scale service also under development, based on digital cordless technology. CT-2 users will carry their pocket terminals to within 200 meters of transmission points located in public areas (streets, shopping malls, etc.) in order to place outgoing calls that will be billed to the user's home or office; incoming calls cannot be received. Telepoint service was pioneered in the United Kingdom, where the public pay phone network is limited, but is also attracting serious interest in Scandinavia, France, Germany, and Hong Kong. Service is scheduled to begin in 1992 in the U.K., where four operators have been licensed in the 800-900 MHz band using the Frequency Division Multiple Access (FDMA) variant of digital radio transmission technology. Because the technical specifications and coverage requirements are comparatively simple, CT-2 service will be far less expensive to implement than both cellular and PCN. Ten CT-2 trials have been proposed in the United States.

The FCC is receiving a continuing flow of requests (a combined total of 24 as of September 1990) for permission to experiment in the realm of personal communications services, including enhanced Specialized Mobile Radio (SMR) and PCNs and CT-2. These proposals, which will examine propagation and interference phenomena, provided the impetus for the FCC to initiate a broad, full-fledged inquiry into the future of personal, mobile communications services in the United States in June 1990. The single most important issue affecting the introduction of these new services in the United States is spectrum allocation. Given the scarcity of spectrum, the FCC will examine the need for alternative services in the mobile communications sector. The FCC has already approved several experimental licenses for these services. Some trials will take place on cellular spectrum, while others will utilize spectrum at 1.8 GHz. The experimental licenses allow up to two, and in some cases three, years to construct the system. Although there are no guarantees that any of the new services will be authorized, market pressure is likely to force a final decision on type of service, spectrum allocation, the number of operators, eligibility requirements and geographic scope by the end of 1991. The inquiry will not affect the experimental licenses.

Internationally, the Consultative Committee on International Radio (CCIR) has proposed spectrum allocation of 227 MHz in the 1-3 GHz range for these new services by 1998. The U.S. would have to move or subordinate existing users in order to meet this proposal, a process likely to encounter considerable resistance.

If sufficient spectrum can be found, mobile and other wireless technologies are likely to play a leading role in stimulating communications product and service differentiation - and overall market growth - in the 1990s. These services are certain to attract the mass market that has proved elusive to analog cellular. In so doing, the radio communications market will experience simultaneous disruption and improvement. Operators, manufacturers, and users will benefit as the market expands to encompass a wider variety of price versus performance options. The challenge will be integrating and merging these services into a cost-effective and perceptively seamless transmission network.

The following sections of this chapter review the major developments and outlook of four of the most dynamic nonwireline communications technologies - satellite communications systems, cellular radiotelephone systems, microwave systems, and fiber optics. These profiles provide useful insights into industry trends. - Lind L. Gossack and Anthony J. Mocenigo, Office of Telecommunications, (202) 377-4466, October 1990.

SATELLITE COMMUNICATIONS SYSTEMS

Strong international demand and the return of viable and competitively priced launch vehicles worldwide spurred the U.S. communications satellite industry to renewed growth in 1990. Production of complete space communications satellite systems (SIC 36631.38) rose about 5 percent in 1990 to more than $2.7 billion, following a 4 percent increase in domestic production in 1989. Satellite communications systems consist of a space segment - the communications satellite that both receives and transmits signals - and a ground segment - which includes earth stations for both transmitting and receiving signals, and equipment for tracking, telemetry, and control (TT&C).

Space Segment

U.S. satellite manufacturers delivered nine communications satellites in 1990, all for export, at an estimated net value of $1 billion. With only eight satellites scheduled for delivery in 1991, revenues are expected to dip slightly next year to around $800 million.

Exports of communications satellites far outstripped imports in 1990, and the U.S. industry's longstanding reputation as the world leader in satellite technology should ensure a healthy trade surplus through the mid-1990s. International demand for communications systems will remain strong, with 51 satellites currently on order worldwide between 1991 and 1993. Among the major satellite projects on line are updates for existing domestic satellite systems for the European Community (EUTELSAT 2), Australia (AUSSAT 2), and Mexico (MORELOS 3), as well as completely new satellite systems on line for Turkey, Spain, Pakistan, South Korea, Thailand, and Brazil. The International Satellite Organization (INTELSAT) is also contracting for the next generation of satellites, and currently has orders with U.S. manufacturers for nine satellites over the next three years, with options for five more. The International Maritime Satellite Organization (INMARSAT) also is looking at a new generation, the INMARSAT 3 series, in the coming years.

Including the 16 satellites and three ground spares planned by the seven domestic operators, U.S. firms have contracts to build 29 satellites, for a 57 percent share of worldwide satellite orders in 1990. The U.S. is followed in market share by France with 17 percent and the United Kingdom at 10 percent. However, in the next five years, U.S. industry can expect increased competition from well-established French and British firms, as well as from Japanese, Soviet, and possibly Chinese manufacturers now expressing interest in entering the market.

The trend toward higher power and higher frequency, communications satellites will continue in the next five years, with increasing numbers of satellites featuring Ku-band transponders, as well as the more traditionally used, lower power C-band. The National Aeronautics and Space Administration (NASA) estimates that by the mid-1990s, the number of Ku-band transponders in orbit will be double those at the C-band. Higher frequency satellite transmission carries the advantages of less terrestrial interference from microwave systems, smaller and therefore less costly earth station equipment, and more cost-effective networking capabilities.

Interest in commercial development of smaller, lighter satellites figured prominently in projects proposed in 1990. These satellites, called "lightsats," carry only 3 to 10 transponders (compared with the 24 to 36 transponders carried by most larger satellites), weigh less than 1,000 pounds, and are generally launched into low earth orbits (LEO), though some are launched for geostationary orbit. Low-orbiting satellites also require smaller antennas, allowing the receiving units for such systems to shrink to as small as handheld size.

The U.S. military dominates the lightsat market, with 11 launches in 1990 and NASA proposing to launch 2 scientific lightsats yearly for the next five years. However, because lightsats are quicker and cheaper to produce (as low as $5 million for 10 transponders) and are more easily launched, many new commercial applications are now being proposed. Five companies filed in 1990 to operate lightsats, although none are scheduled for launch until the mid-1990s.

While Motorola had not yet filed with the FCC, it announced an innovative satellite-cellular telephone system called Iridium in June 1990, planned for full service in 1996. The proposed system would include as many as 77 LEO satellites to provide digital switching for worldwide mobile communications. Proposals such as Iridium promise a continuous market for lightsat manufacturers, with obvious benefits to the overall industry outlook.

In the developing world, lightsats have been discussed as viable alternatives to cable systems in upgrading domestic telecommunications. In particular, African nations, the Andean countries in South America, and the Pacific Island nations are likely candidates for light satellite systems in geostationary orbit.

Longer-term prospects for the communications satellite industry are buoyed by domestic opportunities for replacing the current generation of communications satellites, most of which will reach the end of their expected lifespan by the mid-1990s. With the proliferation of domestic satellite systems planned by developing countries, market opportunities for U.S. manufacturers continue to arise from international orders. Future growth will be influenced largely by the following factors: (1) new orders from INTELSAT and foreign governments; (2) the success of proposed new satellite services, such as direct broadcast television and mobile satellite services; (3) changes in the regulatory climate regarding the interconnection of separate satellite systems (i.e., non-INTELSAT) to public switched telephone networks; and (4) the continued availability of adequate launch vehicles.

Ground Segment

Industry estimates of the domestic earth station market in 1990 vary widely, from $450 million to as high as $1.1 billion, and no official trade or production data are compiled for this segment as a whole. The U.S. Department of Commerce estimates the market at $860 million in 1990, up about 15 percent from 1989. Earth station sales are expected to accelerate throughout 1991, spurred by three leading growth areas: Very Small Aperture Terminals (VSATs) and its emerging corollary, the Ultra Small Aperture Terminal (USAT); the Television Receive-Only (TVRO)/Direct Broadcast market; and the mobile satellite market. On the other hand, sales of earth stations for broadcasting and cable television (CATV) applications will likely decline from around $220 million in 1990 to $170 million in 1994, as these products reach the mature phase of the production cycle.

The domestic market for VSAT systems in 1990 was brisk, with growth in revenues predicted at around 20 percent annually over the next three years. Private VSAT networks, consisting of a hub station and as many as 5,000 antenna dishes as small as 1.2 meters in diameter, are said to cost 50 percent less than leasing lines from public switched networks. In particular, VSAT systems appeal to the business community for internal data communications, training, video conferencing, and voice-telephone needs. Around 160 VSAT systems were operational in 1990, with some 180,000 private satellite network earth stations planned for installation by 1992.

In the longer term, major VSAT networks can be expected to be brought on-line at the rate of 10-to-15 annually for the next five years, bringing in equipment revenues of $1.7 billion by 1995. Interactive VSAT sales will become the major market force in earth station sales, with the potential market for both VSAT antenna and hubs estimated at some 300,000 units by 1995. The introduction of flat, rather than parabolic, antennas, now widely available in Japan, will further aid the growth of VSATs in the United States, as these antenna are more amenable to local zoning regulations. As the VSAT market for major corporate end-users becomes saturated, longer term U.S. market opportunities will shift to smaller and mid-sized companies. Prices will tend downward as fierce competition in the VSAT market exerts pressure.

While no official data are available, exports of VSAT equipment remain limited, as around 90 percent of all installed VSATs worldwide are in the United States. Public telephone operators in Western Europe have generally resisted the market erosion VSAT networks would pose, and regulatory procedures have been prohibitive to the development of VSAT networks there. However, the United Kingdom allows licensed VSAT operators, and West Germany's deregulation of private satellites in June 1990 may present new market possibilities for VSAT manufacturers, as well as provide a positive example for the remaining European markets. Additionally, VSAT systems are becoming increasingly attractive in developing countries as a cost-effective and expedient means to bypass inadequate local telephone networks.

Some 2.7 million TVROs were in use in the United States in 1990, receiving television signals directly in the home. This 15 percent increase over 1989 largely reflects sales to rural or remote areas where CATV is not readily available. Leading industry estimates place 1990 home satellite TVRO sales at around 380,000 units, for a total market value of just under $400 million. The average cost of a TVRO unit (excluding the descrambler and installation costs) was about $1,000 in 1990. The TVRO industry appears to have recovered from the initial dampening effects of widespread satellite signal scrambling. Three factors have contributed to this recovery: (1) the increased availability of package programming; (2) reduction in the cost of programming to rates comparable to or lower than cable subscriber rates; and (3) the apparent end of the shortage of decoders. Growth in unit sales can be expected to continue at around 10-to-15 percent annually for the next three years.

The TVRO market will grow if plans to initiate Direct Broadcast Service (DBS) are realized. DBS, or pay television transmitted directly to the home, offers more video channels at potentially lower cost than CATV, as well as higher quality voice and video than traditional cable broadcasts. DBS is widely available in Japan and parts of Europe, but is still only in the planning stages in the United States. In the United Kingdom, British Satellite Broadcasting estimates that its DBS services will spur demand for around 10 million additional TVRO receivers over the next five years. However, many European countries prohibit private ownership of TVROs if business TV or data are also transmitted, effectively blocking that market from prospective U.S. entrants.

In the United States, DBS implementation has suffered from the pervasive availability of CATV, as well as high start-up costs. The Federal Communications Commission (FCC) has granted nine U.S. companies conditional permits for high-power, "true" DBS services, operating on the Ku-band with downlinks between 12.2 GHz and 12.7 GHz on frequencies dedicated solely for direct broadcast satellites. The first high-power DBS system is slated for launch in 1993, with two lower-power DBS systems planned for early 1991.

In 1990, Congress expressed an interest in "re-regulating" the CATV market to encourage competition and to ensure access to programming by alternative multichannel applications, including DBS services. Although the move failed, the perceived monopoly of the CATV industry is likely to come under renewed scrutiny in 1991, providing additional impetus for DBS.

The wide range of new Mobile Satellite Services (MSS) also will spur earth station sales as these services come on-line. Some proponents predict that more than 10,000 MSS transceivers will be operating in the United States by 1993, with the number of marine mobile terminals installed shipboard reaching around 17,000 by 1995. In 1990, the FCC opened the way for aircraft MSS terminals to provide in-flight telephone service. Two groups have proposed to offer in-flight telephone service via INMARSAT - Skyphone, a British firm, and GTE Airfone in conjunction with COMSAT. The planned launch of two satellites in 1992 and 1993 by American Mobile Satellite Corporation, a consortium of satellite manufacturers and operators, should stimulate sales of small transceivers that can be mounted on boats, trains, planes, trucks, and automobiles and, in some cases, be handheld.

Proponents of Radio Determination Satellite Services (RDSS), a mobile service that uses satellites for radio navigation and digital messaging, predict that 150,000 of the receiving units will be in operation by the end of 1991. With the expansion of vehicle tracking and messaging services such as those provided by two U.S. companies, Qualcomm and Geostar, the market for compatible receiving units is likely to increase modestly in the short term.

Foreign Trade

U.S. exports of satellite communications antennas rose from $40 million in 1989 to an estimated $47 million in 1990. With continued yearly growth at 8 percent, exports should exceed $50 million in 1991. The expansion of satellite broadcasting capacity in Europe and increased use by Third World countries of satellites for domestic communications will drive growth in this market. European initiatives to liberalize satellite communications also should boost U.S. exports in the longer term. - Patricia A. Cooper, Office of Telecommunications, (202) 377-4466, October 1990.

CELLULAR RADIOTELEPHONE SYSTEMS

The U.S. cellular market continued to experience impressive gains in 1990, despite some expectations that the economic downturn in many end-user industries might dampen growth. Even as the cellular industry moves closer to completion of a truly nationwide network, the challenge and opportunity of replacing current systems with new digital technology lies ahead as a necessity to alleviate capacity shortages and permit future growth. The analog to digital conversion will be the biggest technological transition in this industry's relatively brief history.

According to the Cellular Telecommunications Industry Association, the number of subscribers reached 4.4 million as of mid-1990. With a growth rate of more than 140,000 new subscribers per month (up 40 percent over 1989), the number should grow to about 5.2 million subscribers by the end of 1990, for an annual increase of almost 50 percent. Cumulative capital investment grew 16 percent in 1990, approaching $6.0 billion. This increase is due to the ongoing costs of expansion in metropolitan areas, as well as new system construction in rural markets.

By mid-1990, 592 systems were in operation. Both of the two licensed carriers authorized by the FCC in each market were operating in all 305 metropolitan areas, serving about 75 percent of the U.S. population. The cost of local cellular service declined 6 percent in 1990 to an average of about $85 per month, and the length of the average cellular call was 2.3 minutes.

Based on the number of new subscribers, revenues from equipment sales are estimated at between $2.75 billion and $3.0 billion in 1990, an increase of about 35 percent over 1989. Estimated service revenues in 1990 reached about $5.2 billion, up more than 55 percent since 1989.

Motorola, AT&T and, to a lesser extent, Northern Telecom and Ericsson continue to dominate the market for cellular infrastructure equipment. Northern Telecom made notable gains in 1990, becoming the third largest supplier with nearly 100 systems. The focus of all system vendors has turned to networking larger regional systems, planning for the introduction of digital cellular systems, and tapping rural markets. Market share positions over the next few years are likely to change as a result of both intersystem handoff (see below), which allows companies for the first time to overlay equipment on systems supplied by different manufacturers, as well as the conversion to digital cellular.

In the cellular subscriber equipment market, cellular phone prices dropped sharply in 1990 as cellular moved further into the retail market. In addition, major U.S. auto manufacturers announced plans to begin factory installation of cellular phones. Prices for new mobile units now average about $400. Similarly, average prices for portables dropped to about $800. The continued narrowing of the price differential between mobile- and portable-type units has increased penetration of portables in the market. Portables comprise an estimated 15 percent of total sales, up from about 5 percent in 1987. Motorola's introduction of the world's smallest portable cellular phone, the Micro-TAC, in 1989 was followed in 1990 by the introduction of similar portable models by other manufacturers. Although there is enormous fluctuation in brand penetration and prices across the United States, five leading cellular brands are carried by more than 50 percent of all cellular dealers. The predominance of distribution channels by a few major suppliers limits the penetration of new manufacturers. Telephone sales are believed to exceed subscriber growth by as much as 30 percent because of purchases of additional and replacement phones.

Prices are predicted to increase somewhat with the introduction of dual-mode (i.e. both analog and digital capability) mobile units by all major manufacturers between the second quarter of 1991 and the first quarter of 1992. Vendors have no plans to market dual-mode portables. By the end of 1992, digital-only mobiles and portables may be available. Because these units utilize inexpensive digital signal processing chips rather than duplexers and other components, prices are expected to be lower than those of analog and dual-mode.

Technical Developments

The first commercial application of intersystem handoff between the switching systems from different manufacturers took place in mid-1990, using the industry-developed cellular system networking standard, Interim Standard or IS-41. This important development brought the industry one step closer to achieving a "seamless" nationwide cellular network, in which calls can be continued across individual system boundaries without interruption, rather than being disconnected.

Although some intellectual property rights issues are still to be resolved, a subcommittee of the Telecommunications Industry Association completed work on the dual-mode cellular air-interface technical standard, known as IS-54 in June 1990, after two years of intense work by the industry. This standard is considered the crucial first step in the drive to digital cellular because it ensures that equipment made by different manufacturers will be compatible. IS-54 establishes digital compatibility and guarantees that cellular operators can introduce digital equipment without affecting the ability of established customers to continue using their analog phones.

In August 1990, the cellular industry initiated a voluntary program to validate new equipment being developed for the conversion to Time Division Multiple Access (TDMA) digital cellular transmission. The purpose of the program is to facilitate the timely introduction of digital cellular technology and to ensure that dual-mode mobiles will work compatibly with the dual-mode systems of various manufacturers. March 31, 1991, is the target for a "commercial lockdown," which will occur when a minimum of three systems and four mobile units successfully complete a series of laboratory tests and field trials. The objective of this optional validation program is to enable manufacturers of subscriber equipment to gain adequate assurance of network compatibility before beginning commercial production.

Regulatory Developments

By mid-1990, about 75 percent of all markets in Rural Service Areas (RSAs) had been issued construction permits by the FCC, although less than 25 percent had been licensed. RSA markets are important for truly nationwide cellular service because they include many heavily travelled corridor areas between cities. In addition, licenses for the Metropolitan Statistical Areas (MSAs), which were issued for a period of 10 years, will be up for renewal beginning in 1993. The FCC has proposed criteria for license renewal, allowing carriers a presumption of renewal expectancy absent "any substantial relevant misconduct."

Several current cellular operators have petitioned the FCC for permission to conduct PCN trials on cellular spectrum as well as higher frequencies. As long as basic cellular service is not impaired, FCC policy allows licensed cellular operators to experiment freely with novel modulation techniques and services within their spectrum allocation, thereby alleviating the need for a new license application. With the shortage of RF capacity in major urban areas, however, cellular companies will be reluctant to permanently devote much of their profitable and limited spectrum to new services unless spread-spectrum technology proves that the two services can coexist.

At the state level, the cellular industry encountered mixed results in 1990. Although demands for rigid regulation of the cellular industry were rejected, a troubling precedent was set by a ruling that cellular companies must pay full access charges if they wish to offer Wide Area Calling service to their customers. In addition, the courts dismissed claims that cellular operators must scramble their signals in order to provide privacy, ruling that the potential for eavesdropping of cellular transmissions is not equivalent to the intentional divulgence of information.

International Trade and Markets

Imports continue to play an important role in the U.S. cellular market, increasing about 9 percent from $253 million in 1989 to an estimated $275 million in 1990. Hong Kong, Korea, and Japan were the dominant suppliers, with 52, 23, and 18 percent of imports, respectively. Imports were up 52 percent from Hong Kong, flat from Japan, and down 6 percent from Korea.

The total world market for cellular radiotelephone service reached about 9 million subscribers in mid-1990. The United States remains the largest single country market, with nearly 50 percent of total subscribers. Leading markets after the United States are in the United Kingdom, Japan, Canada, Germany, and Scandinavia. Subscriber growth in Japan has been particularly strong with the implementation of new, higher capacity systems throughout the country.

Cellular radiotelephony worldwide continues to experience considerable growth, with at least six additional countries introducing cellular service in 1990. There were more than 10 million subscribers in more than 70 countries at the end of 1990, with more than 3 million in Europe alone. Europe continues to move toward implementation of the Pan-European digital cellular network, scheduled to begin limited service in mid-1991. Between 10 million and 20 million subscribers to Europe's digital cellular system are predicted by the end of the decade, resulting in market penetration of about 3 percent. By the end of 1991, cellular service will be available in more than 80 countries serving more than 13 million subscribers. Growth markets in 1991 include newly industrialized countries such as Brazil, Mexico, and the Pacific Rim nations. An increasing number of countries, including Greece, Venezuela, and Portugal, are moving toward the privatization of cellular telephony. The utilization of several incompatible technologies continues to limit international roaming (service outside of one's local service area) to contiguous geographic areas and/or countries that employ the same system type. This problem should be alleviated somewhat with the implementation of digital cellular systems, but is unlikely to be resolved in this generation of technology.

The U.S. cellular industry has become increasingly active in the world market, winning additional system contracts and operating licenses in 1990. On the equipment side, Motorola's speech codec (coder-decoder) was selected as the standard for Japan's digital cellular network. In addition, Motorola and AT&T were selected by NTT to participate in prototype development for this system. Consortiums including Regional Bell Operating Companies, Contel, Millicom and others were selected to operate cellular systems in countries such as Mexico, Germany, Czechoslovakia, and Hungary.

Future Market Growth

Driven by the opportunities provided by digital technology, the U.S. cellular market is expected to experience steady growth in 1991. The rate of growth in equipment sales should drop slightly to about 25 to 30 percent, reaching $3 billion to $3.5 billion. Capital investment will likely reach $7.5 billion by the end of 1991. With the number of U.S. subscribers predicted to approach 7 million (up 35 percent over 1990), service revenues are expected to increase nearly 30 percent to an estimated $6.6 billion. Subscriber growth is likely to continue at current rates for the foreseeable future.

The key to cellular's growth will be the conversion to digital cellular, driven by analog cell site congestion and intense demand. Although this congestion is not a pervasive problem throughout the U.S. or even within particular metropolitan areas, it has had a direct negative effect on the overall cost of cellular infrastructure equipment, and thereby service charges and future sales. In addition, real estate prices and local zoning regulations make it increasingly difficult and costly to further expand analog cellular networks.

Digital cellular using TDMA transmission will increase capacity to three times that of analog cellular initially, rising to six and possibly 10 or 12 times higher in the longer term, using existing cell sites. In addition to the capacity benefits, other advantages for both operators and users include: (1) enhanced functionality - security/encryption, high speed data and simultaneous voice/data transmission, messaging, vehicular tracking; and (2) improved system performance - quieter handoffs, better sound quality, fewer "dropped" calls. In addition, digital cellular offers significant cost savings for network operators.

With analog cellular's limited capacity, considerable capital investment per subscriber has been required. Even though the cost of digital base station equipment will be greater than the analog equivalent, the capacity augmentation associated with digital cellular will result in declines in the average cost-per-channel of 40 to 50 percent. As a result, the profitability of service providers should increase. Nonetheless, analog and digital cellular systems will coexist in parallel for some time. The demand for new services as well as price evolution will dictate a gradual shift toward an all-digital network.

A certain amount of discord over digital cellular standards remained evident within the industry, with some manufacturers and operators announcing their intention to develop CDMA systems rather than, or in addition to, the agreed-upon TDMA standard. Such a major change made at this point could result in both higher development costs and delays in the conversion to digital.

The majority of cellular subscribers are business and professional customers who depend on cellular as a productivity tool. Cellular service providers will need to attract a larger segment of the ordinary consumer market in the next few years. In addition, with layoffs occurring in many end-user industries, cellular must reach out to smaller and new companies. Cuts in monthly charges and creative advertising campaigns, which are already becoming evident, should attract new customers.

In sum, the leading factors affecting market growth in 1991 will be: (1) the speed with which rural systems are constructed; (2) further facilitation of nationwide roaming through implementation of intersystem handoff; (3) the commercial availability of dual-mode equipment; and (4) the ability of system operators to reduce service costs sufficiently to penetrate the consumer market.

In the longer term, recent forecasts project a market of 15 million to 20 million subscribers in the United States by 1995. The continued expansion of the cellular industry will depend upon: (1) implementation of a new and uniform digital cellular technology to handle current and expected demand; (2) further improvements in battery and circuit technology to reduce the size, weight, and cost of cellular portable radiotelephones; (3) the reduction of service prices to acceptable consumer levels and (4) allocation of radio spectrum for complementary and competitive services.

U.S. and European initiatives to implement digital cellular networks will create sizable markets for equipment suppliers in the early to mid-1990s. As in the case of analog technology, the size and importance of the U.S. market will be significant in lowering the cost of digital cellular equipment and creating export opportunities for U.S. cellular suppliers. In addition, strong interest within the cellular industry in offering new wireless services should stimulate cellular demand. These new services are unlikely to compete directly with cellular because of the prohibitive cost of constructing separate infrastructures on a nationwide basis, as well as technical limitations. - Linda L. Gossack, Office of Telecommunications, (202) 377-4466, October 1990.

MICROWAVE SYSTEMS

The market for microwave communications equipment encompasses: telephone common carriers; private systems (such as pipeline, railroad, and oil industries, local area networks, mobile telephone, and telephone company bypass applications); broadcast radio and television; cable television; and Federal, state, and local governments. Common carriers represent around 60 percent of the installed microwave market; private systems, 15 percent; and other users, 25 percent. U.S. shipments of complete microwave systems increased about 2 percent to approximately $870 million in 1990 from $855 million in 1989, primarily the result of equipment sales for short-haul operations.

U.S. Industry Trends

The microwave communications industry is undergoing fundamental changes as a result of improvements in technology and competition from fiber optic and satellite systems. The trend in microwave systems is toward short-haul, urban systems operating in higher transmission frequencies. Inherent advantages over the competing technologies of satellite communications and fiber optic cable ensure several market niches for this industry. Microwave systems can be installed quickly and cheaply, in part because no right-of-way is required, they also can serve rugged or inaccessible areas readily. As a result, today's best prospects for microwave are in high-frequency, short-haul, urban markets, and thin-route rural markets. Private microwave networks will continue to be attractive, cost-efficient systems. Microwave systems are also emerging as reliable disaster recovery telecommunications systems and are increasingly being used to expand one-time or temporary capacity for existing telephone systems, or to link cell sites for cellular telephone systems.

Traditionally, microwave signals were transmitted over long-haul paths reaching up to 40 miles without repeaters. The largest owners and service provides using these systems were regional wireline telephone companies and the long-distance service providers such as AT&T, U.S. Sprint, and MCI. These long-haul, thick-route, TD-2 analog microwave systems, installed coast-to-coast in the 1940s and 1950s, are now rapidly being replaced by fiber optic systems, eroding the dominant role of microwave technology in this market. In its place, short-haul transmission paths - 5 to 10 miles without repeaters, operating in the 18 GHz or 23 GHz range - have grown in the past few years. In particular, short-haul microwave has become prevalent in urban areas, used as an alternative to leased lines in bridging the distance either between the long-distance carrier and the office or between facilities.

The refinement of high-frequency microwave has facilitated short-haul microwave transmission, and contributed to even more competitive prices and higher trunk speeds. While microwave transmission is traditionally understood to mean frequencies above 1 GHz, overcrowding of the most popular frequencies - 2.4 GHz and 6 GHz - by common carriers has increased interest in frequencies above 11 GHz, as high as 38 to 60 GHz. Such high frequencies, particularly when coupled with digital technology, can increase trunk speed dramatically. Higher frequency ranges also have the advantage of increased access to spectrum in the 18 to 23 GHz range, and less stringent FCC technical requirements, easing development costs for higher frequency systems. In addition, higher frequencies translate into shorter wavelengths, and therefore smaller, cheaper antennas. These shorter transmission paths also facilitate the use of low-power, solid-state microwave devices.

Nearly all new microwave systems being installed today are digital, replacing older analog systems. These new systems take advantage of efficient digital switches and can more readily transmit digital signals. New analog equipment sales are being made largely to maintain existing rural analog telephone systems, to broadcast and cable television (CATV) systems, and to overseas markets. Also, due to frequency overcrowding in the lower gigahertz range, many of the new urban systems are utilizing the higher frequency ranges of 10 to 23 GHz.

Ten U.S., Japanese, and Canadian firms, comprising about 96 percent of the market, continue to dominate the microwave communications equipment industry. A number of other firms specialize in civilian and military government contracts. By the mid-1990s, however, market competition will likely whittle the number of microwave manufacturers to only five or six large suppliers.

In 1990, total sales were split as follows: approximately $151 million was for private microwave systems, up from $141 million in 1989; $23 million for CATV systems, up from $22 million in 1989; around $215 million for state, local, and Federal Government agencies (including the military); with the remaining $460 million for common carriers and the broadcasting industry. Growth will remain slow at around 2 to 3 percent yearly for the next three years. Industry sources expect short-haul operations to increase 22 percent per year until 1992, while long-haul decreases around 3 percent yearly over the same period.

The FCC estimated that about 1,500 U.S. common carriers operated some 17,000 individual microwave stations (i.e., towers) in 1990. Over the past three years, the flow of FCC applications for new station permits has remained constant at around 8,000 applications yearly, and FCC officials do not expect this rate to increase substantially over the next few years. The FCC reports 32,871 individual private microwave stations licensed in 1990, with notable growth in the 23 GHz range and in point-to-multipoint applications. In addition, the FCC licensed around 2,287 Cable Antenna Relay Services (CARS) systems in 1990 - microwave transmission used to bridge gaps between cable systems. The FCC expects continued growth in CARS systems licensed, with a constant 10-percent rate of increase yearly over the next few years.

Sales growth will slow in several major segments of the market over the next three years. With nearly 90 percent of the roughly 1,450 public and private broadcast television stations using microwave equipment, this market appears fairly saturated. Most sales of microwave equipment will be for replacement of existing towers, not new stations. The same can be said for the approximately 10,000 AM and FM public and private radio broadcast stations. Sales to long-haul, rural common carriers will support maintenance functions, with most new sales for short-haul, digital stations. Federal budget constraints will cause domestic sales to government agencies, especially the Defense Department, to remain stagnant through 1991.

Foreign Trade

Although the export market for microwave communications equipment remains substantial, official trade data are limited. Exports of radio transmitters for frequencies over 1,000 MHz were estimated at approximately $20.2 million for 1990. Foreign sales of radio receivers for frequencies over 1,000 MHz declined slightly from $17 million in 1989 to an estimated $16.5 million in 1990. Export data for microwave antennas, amplifiers, exciters, converters, waveguides, and other equipment are not available. While the precise amount is not known, exports to the Third World often consist of second-hand, analog microwave equipment. The largest export market for microwave communications equipment appears to be in developing and oil-producing countries, where lack of infrastructure and rough terrain make microwave systems more competitive.

During 1990, approximately $7.6 million worth of radio transmitters and just under $1 million worth of radio receivers for frequencies over 1,000 MHz were imported into the U.S. Import data for other microwave equipment were not available.

Future Growth

Competition from fiber optic and satellite systems and the saturation of traditional markets will hold growth in the total market for microwave systems at about 2 to 3 percent per year for the next three years. The U.S. market for microwave systems will be approximately $885 million in 1991, $910 million in 1992, and $935 million in 1993. Generally, short-haul microwave systems will overtake long-haul systems, and digital equipment sales will grow at the expense of analog equipment sales. Domestic digital microwave equipment sales are projected to rise from $430 million in 1990 to $590 million in 1993. Domestic sales of analog microwave equipment will drop from $345 million in 1990 to $265 million in 1993. Revenues from equipment sold for long-haul microwave applications will slip 3 percent a year from $405 million in 1988 to $360 million in 1993. Domestic sales designated for short-haul systems will rise from an estimated $170 million in 1990 to $375 million in 1993.

International markets will show sustained interest in microwave technology, led by Germany and the United Kingdom. Eastern Europe's urgent need for quick and relatively inexpensive improvements in telecommunications systems dovetails with the strong aspects of microwave technology. However, the shortage of foreign currency in the region and the potential competition from fiber and satellite alternatives will limit sales to the Eastern European market.

In the future, microwave equipment will increasingly be integrated with other technologies such as cable, fiber optics, and local area networks. Microwave technology will figure prominently in the emerging markets of telecommunications for disaster recovery and in high-speed data transmission. The next five years will see further expansion of digital applications, aided by improved compression techniques, and reduced equipment interference through the use of new super-conduction breakthroughs. The industry will continue to focus on exploiting higher frequency ranges (30 to 1000 GHz), in order to fully utilize the microwave capabilities in the electromagnetic spectrum. - Patricia A. Cooper, Office of Telecommunications, (202) 377-4466, October 1990.

FIBER OPTICS

The U.S. fiber optics market continued its steady growth in 1990, rising to about $1.4 billion. The increasing use of fiber optics in the local loop, Metropolitan Area Networks (MANs), Local Area Networks (LANs), and cable television (CATV) systems contributed to the market's growth. In the long term, current fiber-to-the-home (FTTH) and fiber-to-the-curb (FTTC) trials have shown that fiber optics is a viable and economic transmission medium for voice, data, and video. However, various state and local regulatory problems must be resolved in the near future if the U.S. fiber optics market is to have dramatic growth in this decade and beyond.

U.S. Market Trends

The U.S. market for cabled optical fiber in 1990 rose to about 2.0 million fiber-kilometers. Prices for fiber optic components continued to decline across the board as production volumes rose and consumers gained more experience with this technology and its applications.

The value of shipments of optical fiber for data and nondata transmission (SIC 32318) rose slightly in 1990, to $325 million from $312 million in 1989. Shipments of fiber optic cable (SIC 33579) were valued at about $650 million in 1990, compared with $624 million in 1989. Shipments of fiber optic systems and equipment (SIC 36631 13) increased in 1990 to approximately $500 million, up/down from the 1989 figure of $46 million. Fiber optic test equipment, including optical time domain reflectometers (OTDR) (SIC 38252 85), stood at an estimated $13 million in 1990, or about the same as in 1989.

With the virtual completion of digital interexchange networks, the local loop has assumed a more prominent role in the use of fiber optic equipment. On the aggregate, deployment 2of fiber optic equipment by the local subsidiaries of the Regional Bell Operating Companies (RBOCs), GTE, and Contel has more than doubled since 1987, amounting to over 4 million fiber-kilometers installed. At the same time, alternative access carriers, also known as "bypass carriers," are installing MANs in major business centers in major cities across the United States. According to the Federal Communications Commission (FCC), these carriers had deployed close to 55,000 fiber-kilometers by year-end 1989. One market research firm has forecast that 29 MANs could be operating in 18 cities by the end of 1991.

Both long-distance and local telecommunications providers are experimenting with Synchronous Optical Network (SONET) transmission products that start with speeds of OC-1 (51.84 million bits per second) to OC-48 (2.4 billion bits per second). SONET is an international standard based on fiber optics that allows individual channels or bytes to be accessed within a bit stream. This will provide for the transport of broadband services on single-mode optical fiber. Although aspects (or "layers") of the SONET standard have not been completed, several companies introduced SONET products in 1990.

Several additional FTTH and FTTC trials were announced in 1990, driving fiber optics closer to the subscriber. The trials numbered more than 40 at year-end 1990 and generally provided voice, data, and CATV to the home. Contel, GTE, and the RBOCs are evaluating both FTTH and FTTC systems, although the latter seems to be gaining in popularity based on its less expensive cost and ability to upgrade to direct installation to the home at a later time. Passive optical networks (PON), which split optical signals to serve several homes, also are being evaluated.

Over the last two years, multiple service operators (MSOs) of CATV systems have dramatically increased their use of fiber optics. Each of the 20 largest CATV operators in the United States have employed fiber optics to upgrade their networks, reduce operating costs (by reducing the number of amplifiers needed), lower maintenance, improve reliability, and enhance signal quality. The National Cable Television Association (NCTA) estimated in 1990 that cable industry deployment had jumped 600 percent since 1988 and will increase at an annual rate of 25 percent through this decade. Similarly, electrical utilities have increased their deployment of fiber optics for their communications networks.

The installation of fiber optics grew in 1990 for businesses and other organizations with large data communications needs. The fiber optics' share of the Local Area Network (LAN) market has been rising but is still primarily confined to serving as the "backbone" of these systems and various niche markets. Nevertheless, the virtual completion of technical standards for the Fiber Distributed Data Interface (FDDI), a 100/125 megabit-per-second dual token-ring LAN, in 1990 will serve as the primary driver for the fiber optic LAN market into the mid-1990s. The decline in costs for various FDDI components should also accelerate the use of fiber optics in high-speed LANs.

Other small but growing markets for fiber optics include the military, sensor and medical markets. The Department of Defense listed fiber optics as a "critical technology" and indicated that it could provide higher information-carrying capacity for ships, aircraft, and undersea communications by factors of 10 to 100. The military is also a substantial consumer of fiber optic sensors and fiber optic LANs.

Submarine Systems

Numerous submarine fiber optic cable systems were completed or announced in 1990. PTAT-1, the trans-Atlantic submarine cable linking the United States with the United Kingdom, began service in the fall of 1990. The North Pacific Cable (NPC) between the United States and Japan was scheduled to begin commercial operations in December 1990. The Hong Kong-Japan-Korea (H-J-K) cable was also scheduled to start service in 1990. Other major submarine projects either planned or under construction were TAT-9 (United States-Spain, United Kingdom, Spain, France, service in 1991); TPC-4 (United States and Canada-Japan, 1992); PTAT-2 (United States-United Kingdom, 1992); PacRim East (New Zealand-Hawaii, 1993); ASPAC (Japan-Hong Kong-China-Singapore, 1993); TAT-X (United States-United Kingdom, 1993); PacRim West (Australia-China, 1996); and TPC-5 (United States-Japan, 1996). All told, investment in current and future transoceanic fiber optic systems may top $11 billion by the mid-1990s.

INTERNATIONAL COMPETITIVENESS

The United States continues to enjoy a surplus in the international trade of optical fiber and fiber optic cable. Imports of optical fiber and fiber optic cable rose to about $40 million in 1990, a $9-million increase from $31 million in 1989. Exports rose about 15 percent in 1990, to $160 million from $143 million in 1989. The trade surplus rose slightly from $111 million to $121 million. However, it should be noted that many foreign-based companies produce cable, fiber, and other fiber optic components in facilities located in the United States. (Trade figures only report these two products and do not include optoelectronic products, connectors, splicing equipment and other fiber optic components.)

The U.S. share of the world market is likely to decline in the next three to five years as both developed and developing countries install fiber optics on a massive scale. Nippon Telegraph and Telephone (NTT), the dominant telecommunications provider in Japan, announced its "vision" to install single-mode fiber to every home by 2015. Installation is expected to begin in 1995. According to one report, Japanese demand for optical fiber may exceed 10 million fiber-kilometers by the year 2000. As in the United States, the United Kingdom is experimenting with the deployment of fiber optics in the local loop. British Telecom began a trial to 400 business and residential subscribers in the town of Milton Keynes that featured both active and passive optical devices. After successful FTTH trials in Biarritz and Paris, France has embarked on a two-phase installation of a fiber optic long-distance network covering the entire country. The project would cost more than $600 billion and total 17,000 cable-kilometers by the mid-1990s. Italy's Project 80 Enhanced Plan will link its western and offshore cities with an extensive fiber optics network. Several Central European countries are looking into a fiber optics network. A network linking several countries of the Conference of European Postal and Telecommunications Administrations (CEPT) has also been discussed. On the same scale, a group of railway companies is looking to install a pan-European broadband fiber optics network called "Project Hermes."

The United States, Japan, the United Kingdom, Germany, and France have been among the countries active in the research and development of fiber optics. Companies in these countries, often with government assistance, are experimenting with optical amplifiers, optoelectronic integrated circuits, multiplexing, high-speed transmission networks, coherent transmission, and optical switching systems. Early in 1990, AT&T announced that it had successfully demonstrated an optical processor that could form the basis for the development of optical switches and optical computers.

While many of these areas are several years away from the commercial market, they are nonetheless indicators that the capacity of fiber optic systems has only just been tapped. Coherent transmission systems, for example, could result in repeaterless submarine cables across oceans.

The U.S. fiber optics market should continue to enjoy steady growth in the early to mid-1990s. Continued progress in standards such as FDDI and SONET will ensure reliability and interoperability for transmission products and should help make fiber optics more prevalent in the local loop. Costs for both SONET- and FDDI-compatible products are expected to decline throughout the 1990s.

The next major boon for the U.S. fiber optics market will be in the local loop, most notably as fiber gets closer to the home. Before fiber-to-the-home becomes a reality, however, a number of issues - technical, economic/commercial, and regulatory - must be addressed and resolved. In the technical area, questions include: How will the network be powered and who will pay? What architecture will be used? Will it be passive or active? In terms of economics and the commercial marketplace, when will fiber become cost-competitive with other transmission media in the local loop? Do subscribers want or need the number or variety of services fiber optic broadband facilities can provide? In terms of regulatory matters, who will be allowed to provide broadband services to the home - telephone companies, cable TV providers, utilities, or a combination of the above? The answers to these questions may ultimately decide the competitive future of the U.S. fiber optics industry. Assuming the answers to these questions can be provided in the next few years, the industry will enjoy dramatic growth and a stronger competitive posture into the late 1990s and the 21st century. - James M. McCarthy, Office of Telecommunications, (202) 377-4466, October 1990.

PHOTO : Figure 31-1 Growth of U.S. Radio Communication and Detection Equipment Industry

PHOTO : Figure 31-2 Projected Defense Expenditures for Radio and TV Communications: 1990-1994

PHOTO : Motorola's Iridium system is based on a constellation of 77 satellites in low earth orbit that use cellular technology to communicate with users on earth. The U.S. cellular market is expected to experience steady growth in 1991.

PHOTO : Figure 31-3 Growth of U.S. Cellular Telecommunications Market

Additional References

(Call the Bureau of the Census at (301) 763-4100 for information about

how to order Census documents.) Communication Equipment, Including Telephone, Telegraph, and Other

Electronic Systems and Equipment, Current Industrial Report

MA36P(89), November 1990 (estimate), Bureau of the Census, U.S.

Department of Commerce, Washington, DC 20233. Selected Instruments and Related Products, Current Industrial Report

MA38B(89), November 1990 (estimate), Bureau of the Census, U.S.

Department of Commerce, Washington, DC 20233. A Competitive Assessment of the U.S. Cellular Radiotelephone Industry

(PB88219-241), June 1988, Office of Telecommunications, International

Trade Administration, U.S. Department of Commerce, Washington,

DC 20230. Telephone: (202) 377-4466. Defense Electronics, (monthly), Cardiff Publishing Co., Inc., 6300 S.

Syracuse Way, Suite 650, Englewood, CO 80111. Telephone: (303)

220-0600. Electronic Market Data Book, (annual), Electronic Industries Association,

2001 Eye Street, N.W., Washington, DC 20006. Telephone: (202)

457-4900. Fiber Deployment Update-End of Year 1989, Industry Division, Federal

Communications Commission, 1919 M Street, NW, Washington, DC

20554. Telephone: (202) 632-0475. International Competitiveness Study of the Fiber Optics Industry, PB89-114698,

September 1988, Office of Telecommunications, International

Trade Administration, U.S. Department of Commerce, Washington,

DC 20230. Telephone: (202) 377-4466.

COPYRIGHT 1991 U.S. Department of Commerce
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