Attacks by the online bad guys -- hackers, spies and e-terrorists -- are helping to fuel a market for data and network encryption that could reach nearly half a billion dollars by 2007, according to a new industry report.

The amount of classified information being transmitted via networks is rapidly increasing, and as e-terrorists attempt corporate espionage and hacker attacks, military and government agencies along with contractors, are being required to invest more to assure their privacy.

In fact, new analysis by marketing consulting company Frost & Sullivan entitled "World Military and Government High Assurance Network and Data Encryption Market" states that this industry generated revenues of $176 million in 2000 and is projected to increase steadily to $457.6 million by 2007.

"Hackers are no longer solely focused on disrupting service and implanting viruses," said Frost & Sullivan Senior Analyst Brooks Lieske. "They are also doing less noticeable, but potentially more damaging activities such as reading e-mail and gathering restricted information from Internet sites and computers."

International agencies ranging from the U.S. National Security Agency to NATO are increasing network defense spending and modernizing equipment, says the report. Because of the multiple security risks associated with networks, end users are trending towards multi-layered security, with the military showing growing interest in wireless encryptors.

"Manufacturers must also cater to defense contractors who use similar high-speed encryptors to comply with government security regulations," said Lieske. "Not only must contractors protect sensitive information from global espionage, but corporate espionage has also become a concern."