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Introduction to the Telecommunications Industry
Globally, the telecommunications industry was about a $3.7 trillion sector in 2009, including about $1.2 trillion in total revenues in the U.S. (These figures include equipment and related services, as well as subscriber revenues.)
The International Telecommunication Union (ITU) estimates the number of mobile subscribers worldwide at 4.01 billion at the end of 2008, up from 1.41 billion in 2003. This is a compound annual growth rate of 23.2%, and represents 59.3% of world population. Global wireless subscribers will grow to over 5.5 billion by 2011 to 2012, as low-cost providers are making service prices low enough to be affordable for vast numbers of people in Third World nations. Inexpensive cellphones are now indispensable to consumers from Haiti to Africa to New Guinea. Telecommunications remains one of the largest providers of employment in the world, with over 1 million employees in the U.S. alone.
The ITU estimates global landlines at 1.27 billion at the end of 2008, up from 1.13 billion in 2003, which is a compound annual growth rate of 2.4%. This is 18.95 landlines per 100 global population. For the U.S., the ITU estimates 158.4 million landlines at the end of 2008, down from 182.9 million in 2003. This is a negative 3.5% annual growth rate, and a decrease from 61.61 lines per 100 population to 51.33.
Several major factors are creating changes in the telecommunications sector today, including: a) budgetary pressures and slower growth due to the global recession, b) a shift in residential and personal use from wired services to wireless, c) intense competition between cable and wired services providers and d) rapid advances in Internet and wireless technologies, including more advanced cellular handsets and wider availability of 3G services.
No other industry touches as many technology-related business sectors as telecommunications, which, by definition, encompasses not only the traditional areas of local and long-distance telephone service, but also advanced technology-based services including wireless communications, the Internet, fiber-optics and satellites. Telecom is also deeply intertwined with entertainment of all types, including cable TV systems, since cable companies are now aggressively offering local exchange service and high-speed Internet access. The relationship between the telecom and cable sectors has become even more complex as telcos are now selling TV via IP (Internet protocol) services, competing directly against cable for consumers’ entertainment dollars.
Ingenuity, innovation, cost control and a reasonable approach to spending and investment will help to move the industry ahead. New cellular, cable telephony, VOIP (Voice Over Internet Protocol) and wireless technologies promise continuous rapid evolution of this sector and pose a massive threat to traditional landlines. The cost of a cell phone call has become a bargain worldwide, and cell phone manufacturers are adding advanced new features to their phones on a regular basis.
Improved cellphone service has prompted tens of millions of consumers to cancel their landlines altogether, eating into traditional revenue streams at AT&T, Verizon and Qwest, among others. Meanwhile, wireless access to the Internet threatens traditional broadband suppliers. WiMAX, an advanced wireless technology with a range of up to 30 miles, has the potential to disrupt traditional broadband, cell phone, landline and Wi-Fi systems.
As more consumers recognize the promise, and good value, of phone service using VOIP, the number of companies offering this service has increased dramatically and millions of households and businesses worldwide have signed up for less-expensive VOIP service as an alternative to landlines, often through their cable providers as part of a bundle of services. Several heavy hitters, such as Comcast, have jumped on the VOIP bandwagon, along with startups like Skype and Vonage.
At the same time, local phone companies, led by Verizon and AT&T, are laying fiber-optic cable directly to the neighborhood and even into the home and office in order to retain customers with promises of ultra-high-speed Internet connections and enhanced entertainment offerings online. This is the big telcos’ way of fighting back. If cell phone owners are dropping their landlines, while VOIP over cable takes even more landline customers away, then the best weapon that traditional telcos can use in their battle for market share is the Internet. AT&T and its peers are focusing on bundled service packages (combining wireless accounts, very high-speed Internet access and entertainment such as video on demand and TV via IP, in addition to VOIP or landlines). Next, the traditional telcos need to create innovative new value-added services that are accessed online. For example, consumers might respond well to online services that monitor home security or adjust home energy usage, or services that monitor the movements and needs of elderly family members at home. The right value-added services, controlled via cellphones and/or the Internet, could get consumers hooked, with the potential to build new revenues and stop customer turnover.
In the U.S., cellular phone companies have upgraded many of their networks to 3G. In addition, they are adding new towers in large numbers to better handle traffic volume. In developing nations, wireless service providers such as India’s Bharti Airtel have become extremely innovative and cost-effective, providing basic cellular service for very modest amounts of money.
Mergers, acquisitions and other industry changes redefined telecom. AT&T and SBC merged (changing the name of the merged company to AT&T, Inc.), and MCI merged into Verizon. Sprint and Nextel have combined to create wireless giant Sprint Nextel. The competitive landscape is shifting dramatically due to these mergers.
In addition, government regulations are evolving quickly, which will bring even bigger changes to business strategies. Overall, the telecommunications industry is in a state of continuous technological and economic flux driven by intense competition and new technologies.