Telecommunications analyst Paul Budde released a report today which predicts telecoms market growth will drop to 4.1 per cent by 2008 and 3.4 per cent by 2009.

The fall follows a fairly buoyant period with the overall telecoms market growing 5.2 per cent to $36.6 billion in the 12 months to June, 2007.

Budde said the market will subside over the next two years as Telstra is forced to begin a period of transformation and rationalisation.

But in 2007, he said Telstra maintained its stranglehold on the wholesale market with revenues of just under $3 billion in 2007, which constitutes more than 70 per cent of the $4.2 billion wholesale market.

The total second tier market (including wholesale revenues) grew at around 7.9 per cent in 2007 to $9.2 billion and Budde expects the growth rate to drop slightly to around six per cent in 2008 and then maintain this level moving into 2009.

According to the report, Telstra's Retail broadband subscribers jumped 60 per cent to 2.4 million, and market share increased from 45 to 47 per cent. In fact, retail broadband for the first time exceeded the dollar decline in PSTN revenues.

Budde said Optus is starting to feel the pinch of a mobile market that has almost reached saturation point with local access revenue declining.

"After some very tough years the second tier market is finally turning the corner, although still struggling. Regulations have finally started to fall in place providing the market with an economically viable wholesale platform," he said.

" With good wholesale prices in place, by late 2007 the industry has increased the number of lines which they now operate independently from Telstra."

Key drivers for this move are players such as Optus, PowerTel, iiNet and Internode. As broadband access becomes near universal, Budde said there will be further commoditisation and consolidation.

The fixed-line voice market, which has been losing overall market share for years, will drop to just 28 per cent of the overall market by 2009.

Also, growth in mobile subscribers is slowing and ARPUs have been steadily declining over the past few years but this will stabilise by year's end. In addition to a market that has almost approached saturation, operators' revenue growths will be modest from 2008 onwards.

Budde said growth was around 8.5 per cent for 2006 and 10.3 per cent in 2007 and this will taper off further to 7.2 per cent in 2008 and five per cent in 2010. · "Subscriber growth reached seven per cent in 2007 and we predict that growth will subside to four per cent in 2008 and reduce further to only two per cent in 2010," he said. Finally, Internet access revenues (dial-up and broadband) showed very strong growth in 2006 and 2007 driven by strong uptake of broadband.

Budde said the revenue growth rate for 2006 was 27 per cent compared with 33 per cent in 2007.