Introduction to the Telecommunications Industry
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. Cable TV systems, such as Comcast, are aggressively offering local telephone service and high-speed Internet access. The relationship between the telecom and cable sectors has become even more complex as traditional telecommunications firms such as AT&T are now selling television via the Internet, and competing directly against cable for consumers’ entertainment dollars.
Consequently, the various organizations that monitor the global telecommunications industry have their own ways of estimating total revenues, and their own thoughts on including, or not including, specific business sectors. Does “telecom” include equipment sales and consulting? Or, should it be considered to be services only, such as subscriber lines and data networks?
Information and Communication Technologies (ICT) is a term that is used to help describe the relationship between the myriad types of goods, services and networks that make up the global information and telecommunications system. Sectors involved in ICT include landlines, private networks, the Internet, wireless communications, (including cellular and remote wireless sensors) and satellites.
Globally, in the broadest possible sense (based on ICT), the telecommunications industry was about a $4.7 trillion sector in 2012. (This figure includes equipment and related services, as well as subscriber revenues and other business revenues.) The United States market was about $1.1 trillion in 2012. These estimates come from the Telecommunications Industry Association. Telecommunications remains one of the major providers of employment in the world, with 865,300 employees in the U.S. alone.
There were approximately 5.9 billion wireless service subscriptions worldwide as of November 2011, according to the International Telecommunications Union (ITU). This is immense growth from about 4 billion at the end of 2008 and 1.41 billion in 2003. However, the actual number of individuals holding those subscriptions is somewhat less, at approximately 4.9 billion (according to Plunkett Research), as many people have more than one subscription.
The base of global wireless subscribers will continue to grow rapidly, as low-cost providers are making service prices low enough to be affordable for vast numbers of people in emerging nations. Inexpensive cellphones are now indispensable to consumers from Haiti to Africa to New Guinea.
The ITU estimates global landlines at 1.16 billion at the end of 2011, down from 1.21 billion in 2009. This is only 16.6 landlines per 100 global population, compared to about 84 per 100 population for wireless subscriptions. For the U.S., the FCC states there were 114.1 million households with wired landlines at the end of 2011, up slightly from the previous year.
Several major factors are creating changes in the telecommunications sector today, including: a) a shift in business and commercial telephones to VOIP (Voice Over Internet Protocol) services, that is, telephone via the Internet; b) a shift in residential and personal telephone use from wired services to wireless; c) intense competition between cable and wired services providers; d) steady increases in Internet usage for communications and entertainment of all types; and e) the continuing evolution of advanced wireless technologies, including more smartphones and wider availability of 3G services and 4G services.
Ingenuity, innovation, cost control and a reasonable approach to spending and investment will help to move the industry ahead. New cellular, cable, satellite, VOIP and wireless technologies promise continuous rapid changes in this sector and pose a massive threat to traditional landlines. The cost of a cellphone call has become a bargain worldwide. Meanwhile, competition among handset makers is more intense than ever. On the higher end, cellphone manufacturers are adding advanced new features to smartphones on a regular basis. These phones now contain significant computing power and memory. On the low end, handset makers are introducing good quality units for as little as $15 to $20 for high volume sales in emerging markets such as Africa.
Improved cellphone service has prompted tens of millions of consumers to cancel their landlines altogether, eating into traditional revenue streams at AT&T and Verizon, among others. Meanwhile, wireless access to the Internet threatens traditional DSL broadband suppliers.
As more consumers recognize the promise, and good value, of phone service using VOIP, 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. A handful of firms, such as Comcast, lead the VOIP market, along with relatively young companies like Skype (acquired by Microsoft in 2011) 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 against cable and satellite companies. If cellphone 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).
For the future, both landline and cable companies should develop innovative new value-added services that are accessed online. For example, consumers might respond well to bundled 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, remote wireless sensors and/or the Internet, could get consumers hooked, with the potential to build new revenues and stop customer turnover.
Mergers, acquisitions and other industry changes redefined telecom in recent years. 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. Qwest has merged into CenturyLink (formerly CenturyTel). 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.
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