IP Carrier: Is Communications Spending Growing, or Not?

Is Communications Spending Growing, or Not?

As a practical matter, it often is difficult to ascertain whether consumer or business spending on particular communications services or products, though up or down in nominal terms, actually represent growth or decline.

The reason is that nominal increases in spending over time sometimes reflect broader price changes in the whole economy, rather than changes in demand or spending as a percentage of total spending.

Also, even nominal spending can be deceptive. If a flat dollar amount of spending over time also is accompanied by large decreases or increases of overall income, for example, the nominal spending can disguise ?real? changes.

Ignore for the moment changes in product value or features over time that also complicate comparisons. If ?X? amount of spending on any product also is accompanied by significant changes in a household or national budget, for example, then the implications can be quite significant.

As a percentage of spending, a flat amount automatically will represent a larger percentage of spending.

In other words, the product of a fraction always changes as either the nominator or denominator changes.

That noted, it is possible that spending patterns are changing, for the first time in decades. There is evidence that between 2007 and 2010, for example, U.S. households were spending much more on ?telephone equipment,? which has to represent purchases of mobile phones. That should, in principle, lead to higher spending on mobile communication services.

There also was a predictable increase in spending on ?communication services,? which probably reflects increases in video subscription rates, plus some incremental spending on mobile services for all those mobile devices people seem to be buying.

Keep in mind that those percentage increases might, or might not, represent a significant change in the percentage of household spending on services or devices.

Logic might suggest that most people do not spend much, in any given year, on fixed line phones or fax machines, for example.

So a 16-percent change on a small base might not represent much actual sales volume. A four-percent growth of spending on ?information processing? equipment, which presumably includes personal computers, tablets and possibly other personal mobile devices, might represent a bigger change in dollar volume.
On the other hand, logic also would suggest that people are spending more on tablets and smart phones, which could mean they are maintaining spending on legacy products, and adding new devices (increasing spending overall), substituting new products for older products (substituting new products for older products), or cutting back someplace else in budgets to add the new products.?

Looking back at the 1990 to 2008 period, for example, one can note ?huge? increases in nominal consumer spending on communications and information technology.

Since 1990, though, those changes also ?have been more than matched by broader increases in household income, holding the percentage of household spending on communications flat over the entire period.

One might also note that such figures also are not typically ?inflation adjusted? to show changes in constant dollar terms.

Since 1990, consumer spending on information and communications technology has grown from $197 billion to $545 billion, 5.1 percent of national disposable income in 1990, peaking at 5.9 percent in 2000, and falling to 5.4 percent in 2008. Those figures include both recurring spending on services and product purchases.

Spending on communications services has tripled over the same period, from $77 billion to $243 billion, and at 2.3 percent of national disposable income, up from 1.8 percent in 1990 but below its peak of 2.5 percent in 2001

Basically, the story is one of large increases in consumer value. Consumers are spending more on communications and information technology, but a steady percentage of disposable income

Yet consumer value has grown exponentially in the intervening years, one might argue. The problem is that changes in product quality are not reflected in retail price metrics. That is a common ?problem? where we look at software and computing devices, where a constant dollar amount buys more processing power and features every 18 months to 24 months.

U.S. communications expenditures as a share of national disposable income has been flat since 1997, but users have added over 100 million broadband and video connections and over 100 million wireless connections, according to the Bureau of Economic Analysis.

Such potential changes bear watching. It would be a very-big deal indeed if typical consumer spending on communications services and mobile devices were to deviate from their historical patterns in a markedly upward direction.

One might argue we already have seen a slight upward trend, measured as a percentage of total household spending. The other angle is that communications spending always will represent a very-small fraction of overall household spending, dwarfed by housing, food, medical care and other categories, for example.

Source: http://ipcarrier.blogspot.com/2012/01/is-communications-spending-growing-or.html

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