Telecom equipment spending rose in 2004 for the first time since the industry bubble burst in 2000, according to the Telecommunications Industry Association's 2005 Market Review and Forecast.

But that wasn't even the good news.

According to David Wilkofsky and Arthur Gruen, of Wilkofsky Gruen and Associates, principal authors of the annual report, the overall telecom industry--including services and equipment spending by service providers and enterprises--grew at a 7.9% clip in 2004, but will grow even faster (8.7%) in 2005. Their report projects a compound annual growth rate of 9.5% between 2004 and 2008.

Equipment spending on its own grew 4.7% in 2004--a modest improvement but significant after the 70% drop in spending between 2000 and 2003, Gruen said.

"We won't return to the spending of the late 1990s, but we will see growth," he commented in a press conference to announce the annual study results.

Equipment spending growth will accelerate over the next four years, as spending is projected to rise from $15.8 billion this year to $21.9 billion in 2008.

That growth is being driven primarily by the convergence of services on IP technology, a move that has fueled spending by both service providers and enterprises, as well as the move to broadband access and new services such as voice over IP, Wi-Fi and WiMax, Gruen said.

"Convergence has been talked about for a long time, but it wasn't really happening," he said. Many enterprises had invested in new gear in the boom of the late '90s and weren't prepared to ditch that equipment when converged systems first came on the market in the past few years. There are clear signs now, Gruen added, that businesses are updating their telecom infrastructure and taking advantage of all-IP systems.

VoIP usage will hit 26 million access lines by 2008, the study projected, including some 7.4 million customers who will be getting their phone service from a cable company at that time, primarily via VoIP.

The TIA will continue to push for policies that don't inhibit U.S. telecom market growth, said TIA President Matthew Flanigan. The organization has recently created a Convergence Policy Working Group to hammer out details of its strategy, he said, but in general is backing the FCC's policies on protecting VoIP from state regulations, and wants to see a national framework for all IP-based services that would protect them from state or local laws or franchise rules.