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1. Introduction to the Telecommunications Industry

Globally, the telecommunications industry is about a $3.85 trillion sector, including more than $1.3 trillion in annual revenues in the U.S. Worldwide, there were more than 3 billion cellular phone service subscribers by early 2008, including more than 265 million in the U.S. Global subscribers will grow to nearly 5 billion by the end of 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.

Several forces continue to trigger major changes in the telecommunications sector today, including: a) mergers and consolidation have completely changed this industry's landscape, b) competition is heating up and cross-border ownership of telecom businesses is making this an increasingly globalized industry, c) deregulation and privatization will have a continual effect on the telecom sector worldwide and d) rapid advances in Internet and wireless technologies will continue unabated, quickly changing consumer preferences and disrupting traditional communication methods.

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 continues to drop, 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, 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 churn.

In the U.S., cellular phone companies are updating their networks to 3G at last. The upgrade enhances service and brings to Americans the third-generation features that consumers in many other countries have enjoyed for years.

Mergers, acquisitions and other industry changes continue to make news. 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. Moreover, for the first time, private equity firms are taking over major telcos, as Bell Canada agreed to a $48.5 billion (U.S. dollars) buyout by private investors. Overall, the telecommunications industry is in a state of continuous technological and economic flux driven by intense competition and new technologies.