SIC 3663
RADIO AND TELEVISION BROADCASTING AND COMMUNICATIONS EQUIPMENT



This industry manufactures radio and television broadcasting and communications equipment. Important products of this industry are closed-circuit and cable television equipment; studio audio and video equipment; light communications equipment; transmitters, transceivers, and receivers (except household and automotive); cellular radio telephones; fiber optics equipment; communication antennas; receivers; RF power amplifiers; satellite communications systems (space and ground segments); and fixed and mobile radio systems. Establishments primarily engaged in manufacturing household audio and communications equipment are classified in SIC 3651: Household Audio and Video Equipment ; those manufacturing intercommunications equipment are classified in SIC 3669: Communications Equipment, Not Elsewhere Classified ; and those manufacturing consumer radio and television receiving antennas are classified in SIC 3679: Electronic Components, Not Elsewhere Classified.

NAICS Code(s)

334220 (Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing)

Industry Snapshot

This industry covers a range of interrelated and sometimes competing communications systems, continually reinventing itself as its individual segments grow. Consumer trends, regulations, technological advances, and corporate decisions shape the emerging structure. The electromagnetic spectrum, through which wireless communications companies transmit signals, is controlled by the federal government, which exerted profound influence over this industry in the late 1990s with new regulations and legislation.

Because communications systems were rapidly being transformed by the demand for customized, interconnected, and wireless services, products leading growth in this industry included wireless communication systems (pagers, cellular phones, personal communications systems), mobile communications equipment, and satellite communications devices.

Organization and Structure

In the early 2000s this category contained several different types of communications technologies. Connectivity between these technologies was increasing, resulting in hybrid products and systems. This was reflected by the diversity of the players in this industry, which included cable television, cellular, electronics, telephone, computer, and satellite communications companies. Wireless communications services included cellular, paging, and specialized mobile radio.

Typically, high-technology consumer electronics equipment became less expensive in the years after introduction. This drop was seen in many products offered by this industry, and it helped to drive growth by attracting new consumer markets.

Pagers. The early to mid-1990s saw significant growth in the paging industry due to increasingly sophisticated and lower-priced products and services. Despite this growth, however, the vast majority of the leaders in the field of paging had been losing money steadily during the latter half of the that decade due to heavy competition in the industry, which was brought about by fierce price cutting schemes. The number of paging subscribers in the United States grew significantly during the 1990s, reaching approximately 50 million by the decade's end, a healthy increase from 14 million at the beginning of 1993. Some of this growth was attributed to the rise of pagers for non-business use. When pagers first appeared on the market in the early 1980s, they were most commonly found on doctors and other busy professionals "on call." They eventually became popular with parents trying to contact their children, waiters who needed to know when orders were ready, teenagers, and anyone with an interest in staying connected to others.

Consumers gravitated to pagers because of a new generation of models that offered new services like twoway paging, verbal messages, portable e-mail, readers, customized stock prices, news flashes, and sports scores. There also was a developing consumer trend toward integrating and customizing communications services that contributed to growth and reduced imputation among different communication services. For example, many cellular subscribers used paging in conjunction with cellular service to mediate costs, because being paged was less expensive than receiving an incoming call on a cellular phone.

Cellular Telephones. Cellular telephones got their name from the small regions (cells) into which service areas were divided. Each cell contained a base station with a low-power transmitter/receiver. Base stations were connected to mobile telephone switching offices (MTSOs), either by telephone wire or microwave transmission. A computer at the switching office coordinated calls for the service area and monitored the calls' signal strength. When the signal lost strength because the caller was exiting the cell, the MTSO switched the call to the next cell. Cells sometimes overlap one another or had gaps between them because of topographical obstructions.

The number of cellular subscribers increased from 30 million in 1993 to more than 1 billion in 2002, according to Research. By that year, several different estimates indicated that wireless phone penetration levels were between 50 to 60 percent, up from approximately 33 percent during the late 1990s. Subscribers were drawn by enhancements such as improved capacity, seamless networking, and personal 800 service. By the early 2000s, operators were replacing their analog technology with digital technology. This transition was viewed as critical to the cellular industry's competitiveness. A digital cellular system transmitted a caller's voice by converting the sound waves into a numerical code, rather than a wave pattern, as in analog systems. Calling capacity was expected to increase by a factor of three or more with digital cell sites. In addition to increased capacity, the conversion to digital offered other advantages: lower unit costs, better quality, increased privacy, and the promise of advanced services and data transmission.

Business users still accounted for the majority of cellular users, but much of the growth in cellular, as with paging, came from the consumer market as the equipment became more affordable. Technological innovations in electronic circuitry and in the intelligence built into the cellular network resulted in new features that made cellular more attractive. Short messaging could be displayed on an alphanumeric display, for example. Some companies introduced cellular phones that could also handle regular wired calls, faxes, or modems.

Another development affecting the structure of the cellular industry was the creation by Independent Telecommunications Network, Inc. (ITN) of a nationwide Signaling System 7 backbone network to transport cellular calls between cell sites. An advanced network protocol, Signaling System 7 managed traffic flow through a telephone network. This significant development enabled the elimination of charges related to "roaming" agreements between operators and special access codes that complicated the use of cellular phones outside of home service regions.

Personal Communications Services. Personal communications networks or services (PCS) involved low powered micro-cellular technology that operates in the 900 MHz band. A digital system, PCS enables a person carrying a pocket-sized phone to be contacted at the same number no matter where the person is. It transmits calls via radio waves to base stations clustered in many service areas.

On September 23, 1993 the Federal Communications Commission (FCC) authorized 160 MHz of spectrum for PCS. Starting in 1994, the FCC began auctioning PCS licenses, which generated billions for the federal government and stimulated the creation of a new generation of wireless services and products. Hundreds of companies applied to the FCC in order to operate PCS systems. Carriers invested in new transceivers, and consumers purchased feature-rich new phones and wireless portable devices.

The FCC enforces anti-collusion rules upon business contracts between broadband licensees, auction winners, and eligible participants in ongoing broadband block auctions. These rules "place significant limitations on an auction participant's ability to pursue business opportunities involving services in the geographic area in which it has applied for a license," according to the FCC. The anti-collusion rules were intended to ensure competitiveness in the auction process and in the post-auction market structure, according to a public notice issued by the FCC on August 28, 1996.

Microwave and Satellite Systems. One of the more mature technologies in this category, microwave transmission can be achieved via terrestrial or satellite systems. Terrestrial, or ground, systems work by sending very high frequency signals from transmitters to repeater stations and back to receivers. For these systems to work, there must be no obstructions, such as mountains, between stations. Satellite transmission works similarly but the repeater station is placed in orbit usually with the region it serves. Because satellites lack the geographic constraints of terrestrial systems, they are better suited for long-distance, point-to-multipoint transmissions such as television broadcasts. Microwave and satellite systems also can be used to transmit audio, video, and other forms of data.

Microwave systems can be categorized as long-haul (transmission distances greater than five miles) or short-haul applications. Common carriers, oil companies, electric utilities, broadcast and cable television operators, pipeline industries, and government agencies use long-haul microwave equipment. Almost 90 percent of public and private television stations transmit signals via satellite. Short-haul customers include universities, institutions, corporations, hotel chains, hospitals, local area networks, cellular phone networks, and local governments. According to the FCC, in the late 1990s the majority of private microwave network users were industrial. Public services held about 22 percent of private microwave network licenses.

Throughout the first half of the 1990s, the United States saw an explosion in global positioning system (GPS) units. The GPS marked the beginning of a technological revolution in navigational aids. Originally developed by the U.S. Department of Defense as an alternative to traditional radio navigation, the GPS used a system of 24 satellites to triangulate the position of a receiver. The signals could identify a receiver's position within a range of about 100 meters. New products that used the GPS for military, aviation, marine, survey and mapping purposes, and tracking and car navigation came onto the market regularly. In the late 1990s and early 2000s, the United States was a global leader in sales of GPS equipment and technology, producing more than twice as many units per month as Japan, the next largest producer.

Background and Development

This industry has developed by continually shedding its old identity as new technologies come along. For example, Motorola, one of the giants in the industry, began in the car radio business. The company sold Handie-Talkies to the Army in World War II and later installed radios in police cars. Many of the companies in this category have been defense contractors.

In the early 1980s, when cellular phones were introduced, AT&T predicted that by 2000 about 900,000 mobile phones would be in use in the United States. By 1993, that number had already been exceeded a dozen times. In the early 1990s, cordless phones began to outsell corded phones. Much of this activity would have been inconceivable before the U.S. Justice Department filed suit against AT&T, and the Bell monopoly was subsequently broken up in the early 1980s. Until 1957, when the courts ruled that telephone customers had the right to use non-AT&T telephone equipment as long as it did not interfere with the public network, everyone used AT&T equipment and service. AT&T's dominant position as the primary U.S. carrier was finally challenged in 1969 by a company using newly developed microwave technology. That company would become MCI Communications Corporation. The industry did not undergo complete restructuring, however, until the Justice Department officially broke the monopoly in 1984, making way for new communications technologies, equipment, and services.

The accelerating development of wireless personal communications services continued to fuel the demand for radio base station equipment, antennas, low earth orbit satellite systems, and wireless equipment. Because there had been no decision on which of two rival digital standards—time division multiple access (TDMA) and code division multiple access (CDMA) would be the industry standard—there was a market for products that supported multiple interfaces. Generic base station transceivers that handle calls using all modulation standards, including U.S. and foreign, analog and digital, voice and data, might also be available for use with a variety of wireless networks, including paging and PCS.

Some industry observers believed the shift from wireline to wireless communications could be as profound as the shift from gaslight to electric light bulbs. After first underestimating the market for wireless communications, major communications, computers, electronics, and data companies began investing heavily in it. AT&T's deal to pay $12.6 billion for McCaw Cellular is one of many examples. A highly publicized health scare in 1993, in which a Florida widower claimed that cellular phone use caused his wife's brain cancer, spurred research into a possible cellular cancer link. Long-term impact on the growth of the market was projected to be negligible, however, unless a viable link was found. The FCC decision to reallocate 200 MHz of spectrum to make way for emerging PCS technologies was vital to the development of the industry and would likely be looked back at as a landmark decision.

The Telecommunications Competition and Deregulation Act of 1996 also had a strong impact on the radio and electronics field. It eliminated monopolies in cable television and telephone companies, opening fields traditionally regulated as public utilities to competition. Perhaps the most controversial part of the law, however, was the introduction of the so-called "v-chip"—a programmable microchip that interprets an encoded program rating transmitted as part of the television signal. The v-chip is intended to allow parents to block programs whose content ratings are deemed unacceptable. Some perceived it to be a veiled form of censorship.

The Clinton administration's technology-friendly position fostered industry growth throughout the 1990s. Clinton proposed a broad 10-year plan to force the Pentagon and other federal agencies to cede control of a big block of the nation's airwaves, thus making them available for new commercial technologies. This action came in addition to the FCC's 1993 decision to reallocate the public airwaves.

Technological advances like cellular digital packet data (CPCD) for cellular service were introduced to help analog cellular systems compete with new digital systems. CPCD was adopted by companies with analog systems to make them more competitive with digital systems.

The FCC decision to reallocate 220 MHz of spectrum previously occupied by fixed microwave users supported increased microwave equipment sales by allowing fixed microwave users to relocate to higher frequencies and by freeing 200 MHz of formerly government occupied spectrum for private sector use.

Pager innovations during the late 1990s included two-way paging, whereby e-mails could be sent and received from pagers equipped with tiny keyboards, and what had been called a mobile answering machine, which allowed the sender to leave a voice message for the receiver. In 1999, stocks began to be traded via these new smart pagers. By the early 2000s, pagers also had become Web-enabled.

Current Conditions

In the early 2000s the status of this industry was both innovative and dynamic. Because of excitement surrounding the idea of a national "information superhighway" and growth in new communications technologies, companies in this industry were keenly watched by Wall Street.

At the same time, weak economic conditions and a faltering telecommunications market were having a negative impact on the broadcasting and communications equipment industry. According to the U.S. Census Bureau, shipment values for communications systems and equipment fell more than 19 percent from 2000 to 2001, declining from $38.9 billion to $30.9 billion. The broadcasting sector of the industry also saw declines, as shipment values fell from $3.9 billion in 2000 to $3.5 billion in 2001. Analysts were hopeful that the wireless handset segment would further the industry's growth as conditions improved. Citing results from Yankee Group Research, Inc., Plastics News revealed that worldwide sales of wireless phones were expected to increase from 409 million units in 2002 to 460 million units in 2003. Within the United States, sales were expected to increase from almost 51 million units to 66 million units.

By early 2003, it was estimated that anywhere from 50 to 60 percent of the U.S. population owned wireless phones. As the number of potential new users dwindled, this saturation led to heavy competition among service providers. One industry development served to increase this competition even more. Many users, especially those in the business world, were reluctant to switch to wireless carriers because of the hassle involved with changing phone numbers. However, in late 2003 the FCC planned to enable wireless customers to retain phone numbers when moving from one service provider to another, making customer retention more pressing for providers.

PDAs and phones capable of digital imaging were poised for especially strong growth in the early 2000s, according to IDC. New Media Age indicated that sales of such phones would reach levels of 151 million by 2006.

The late 1990s saw the birth of smart phones—digital cellular phones with paging devices incorporated in them. They allowed the user to receive and send e-mails, along with connecting to corporate intranets and the Internet. Business people were no longer tied to the computer to keep abreast of the latest in news, and transactions in the global arena. In 2003, the trend toward converging devices continued as personal digital assistants (PDAs) integrated with wireless phones. However, while some users preferred carrying only one device instead of a wireless phone, PDA, and pager, others preferred to have separate devices. For example, it was not possible to simultaneously use the address book or calendar feature of an integrated or "smart" device while using it as a phone.

The wireless application protocol (WAP), a technical standard that linked cellular phones and handheld computers to the Internet was agreed upon in the late 1990s. It was hoped that the WAP based mini-browser would help the industry grow and flourish in much the same way that MOSAIC, the first computer browser, had helped the computer industry grow in the early 1990s. However, while more than 75 percent of new wireless phones were capable of Internet connections by the early 2000s, many American users were slow to take advantage of this feature. Plastics News cited data from the Yankee Group indicating that only 15 percent of U.S. subscribers were using wireless Internet services, even though 45 million individuals owned Internet-ready devices.

Despite slow initial adoption levels, the Strategis Group expected the number of American wireless data users to grow from 2 percent in early 2002 to 60 percent by 2007, according to Office Solutions . The potential growth in wireless communications equipment was not just limited to Internet-ready handheld devices. It also extended to network infrastructures, including wireless local area networks (WLANs). In its 2003 Telecommunications Market Review and Forecast , the Telecommunications Industry Association (TIA) indicated that overall spending on wireless communication equipment was expected to grow between 2003 and 2006, increasing from $123.4 billion to $164.5 billion, respectively.

Industry Leaders

The massive capital requirements of building unique telecommunications systems guarantees that the companies involved will be large and powerful. In recent years, the biggest players in the computer, communications, and information industries have maneuvered for the coming wireless revolution. However, by 2003 many industry players had taken a financial beating amid a weak telecommunications market. Nokia was the leader in this industry with $31.5 billion in 2002 sales and roughly 53,850 employees. In the third quarter of 2002, Nokia held almost 36 percent of the world market for mobile handsets.

Motorola, the industry leader during the first half of the 1990s, was in second place by 2002, with an approximate 14 percent share of the world handset market in the third quarter and company-wide sales of more than $26.7 billion (down more than 11 percent from 2001). Motorola had a broad product line compatible with most standards and long-standing experience in radio electronics. As of 2003 it was among the world's leading suppliers of pagers, two-way radios, and dispatch systems for commercial fleets. Motorola was a leader in the global cellular telephone market, according to U.S. International Trade Commission (ITC) reports. Motorola was instrumental in the development of the Iridium project, a $4 billion system that was developed to connect calls around the world via 66 small satellites in low earth orbit.

The third major player in the cellular industry was Ericsson, with nearly 5 percent of the world handset market in the third quarter of 2002. The company's annual sales totaled $16.8 billion that year, a decrease of 24 percent from 2001 levels. By the early 2000s, Ericsson marketed wireless handsets through a joint venture with consumer electronics giant Sony Corp.

Workforce

The industry employed 159,441 workers in 2000, including 76,113 production workers. Mergers and consolidations among manufacturers, as well as improved productivity and technology, might mean employment declines in the following years. However, this effect might be countered by the growing demand in certain segments of the industry.

America and the World

This industry is positioned to take advantage of demand from developing markets abroad, such as Eastern Europe, Central and South America, and China. American companies are increasingly linking up with overseas competitors to create global partnerships. The U.S. cellular industry is highly competitive in cellular licenses awarded to foreign operators. In recent years, as many as 70 percent of the total licenses to operate cellular systems abroad had been awarded to U.S. firms.

Research and Technology

Because of the technological orientation of this industry, research and technology are a continual, high priority concern. Most of the research and technology is intended to achieve one of several goals: to maximize an existing technology; to combine existing technologies for enhanced competitiveness across technologies; and to improve technology in existing products to attract consumers with next-generation models.

Further Reading

"Air Touch Launches All-Digital Mobile Internet Service." Business Wire, 4 November 1999.

"Close to Perfect Pocket E-Mail." Business Week, 3 May 1999.

"Competition Drives Costs Down for Cellular-Telephone Users." Florida Times-Union, 31 October 1999.

"The Conquest of Location." Economist, 9 October 1999.

Day, Rebecca. "Pagers Get Smart." Popular Mechanics, February, 1999.

"First Personalized Portal WAP and Internet Phones Launched by SmartRay Network 'Internet Phone' Users Will be Able to Access and Customize." PR Newswire, 3 November 1999.

Garcia, Beatrice E. "New York Senator Calls for Cellphone User's Bill of Rights." The Miami Herald, 26 February 2003.

Hoover's Online, 9 November 1999. Available from http://www.hoovers.com .

"Imaging Phones Set to Ship 151m Units by 2006." New Media Age, 29 August 2002.

"Iridium North America Offers New Maritime Equipment Options." Business Wire, 3 November 1999.

Kharif, Olga. "So Long Fat Cell-Phone Subsidies? Pressured Wireless-Service Providers May Have No Choice but to Cut Back Drastically on These Popular but Costly Promotions." Business Week Online, 13 February 2003.

Masie, Elliott. "Two-Way Pagers to the Rescue." Meetings and Conventions, July, 1999.

Paul, Katherine. "Comeback for Telecom? Analysts See a Return to Growth and Profitability in 2003." Research, February 2003.

Renstrom, Roger. "Cell Phones Still Ringing Up Sales." Plastics News, 13 January 2003.

"SBC Communications Announces Wireless Expansion into New Orleans, Southern Louisiana, and Northern Michigan." Business Wire, 3 November 1999.

Telecommunications Industry Association. "TIA Releases 2003 Market Review and Forecast," 25 February 2003. Available from http://www.tiaonline.org .

U.S. Census Bureau. Annual Survey of Manufactures. Washington, D.C.: U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau, February 2002. Available from http://www.census.gov .

——. "Communication Equipment: 2001.". Current Industrial Reports. Washington, D.C.: U.S. Department of Commerce, Economics and Statistics Administration, U.S. Census Bureau. September 2002. Available from http://www.census.gov .

"Wireless Telecommunications Bureau Provides Guidance on the Anti-Collusion Rule for D, E and F Block Bidders." Washington: Federal Communications Commission, 1996. Available from http://www.fcc.gov .

Young, Jonathan. "Will PDAs Ever Be All-in-One?" Office Solutions, February 2002.



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