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Telecommunications Business Trends Analysis, Business and Industry Trends Analysis

¹ Video Tip
For our brief video introduction to the Telecommunications industry, see plunkettresearch.com/video/telecommunications.
 
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 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 expected to be about a $5.6 trillion sector in 2015. (This figure includes equipment and related services, as well as subscriber revenues and other business revenues.) The United States market was estimated at $1.4 trillion for 2015. These estimates come from the Telecommunications Industry Association (TIA). Telecommunications remains one of the major providers of employment in the world, with 866,300 employees in the U.S. alone as of mid-2015, and that number reflects only jobs in pure telecommunications service sectors.
There were approximately 7.1 billion wireless service subscriptions worldwide as of mid-2015, 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 4.3 billion (according to Cisco), as many people have more than one subscription. This would indicate about 60 people having subscriptions per 100 global population.
The base of global wireless subscribers has grown rapidly, as providers have set service prices low enough to be affordable for vast numbers of people, even in very low-income nations. Inexpensive cellphones are now indispensable to consumers from Haiti to Africa to New Guinea. Simple handsets can be bought for as little as $20 in such markets, and they can be topped-off with a segment of prepaid minutes for as little as 50 cents. Smartphones are more expensive, but good smartphones that are Internet-capable are on the market at modest prices.
The ITU estimates global landlines at 1.06 billion as of mid-2015, down from 1.21 billion in 2009. This is only 14.9 landlines per 100 global population. Clearly, the growth in telecommunications is in wireless access and Internet usage in general.
Several major factors are creating deep 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 landline services to wireless; c) intense competition between cable and wired services providers; d) soaring growth in the amount of data and video accessed via the Internet and over wireless devices for information and entertainment, especially video; and e) the continuing evolution of advanced wireless technologies, including more smartphones and wider availability of fast 3G services and 4G services. Simply put, a growing number of telecommunications service users prefer to make their phone calls, download data, view entertainment and otherwise access the Internet via smartphones and tablets, not fixed telephones or PCs plugged into the wall.
Ingenuity, innovation, cost control, mergers between large companies and a reasonable approach to spending and investment will help to move the telecom industry ahead while it goes through these evolutionary changes. New cellular, cable, satellite, VOIP and wireless technologies promise continuous advancement in this sector while posing 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, manufacturers are adding advanced new features to smartphones on a regular basis. These phones now contain significant computing power and memory, to the extent that today’s smartphones easily have more computer processing power than a PC of 15 years ago, at a fraction of the size and weight of a PC. 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. 
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 this 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. Savvy consumers realize that some VOIP services are free, such as certain international calls on Skype or Viber.
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 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 very high speed Internet. AT&T and its peers are focusing on bundled service packages (combining wireless accounts, very high-speed Internet access and TV, in addition to VOIP or landlines).
AT&T took a significant strategic step in mid-2015 by completing its acquisition of satellite TV firm DIRECTV for $48.5 billion. This will turn AT& T into America’s largest TV distributor, with a combined 26 million subscribers when counting both DIRECTV’s satellite customers and AT&T’s U-verse TV via Internet customers. AT&T clearly has the opportunity to offer bundles, including wireless subscriptions, to its new satellite customers.
Telephone giant Verizon completed strategic acquisition of AOL in 2015, largely to acquire AOL’s superb online advertising technologies. Other major mergers awaiting regulatory approval as of mid-2015 included Charter Communications’ (a leading cable firm) proposed acquisition of both Time Warner Cable and Bright House Networks for a total of $67.1 billion. In Europe, the telecommunications firm Alice has proposed a deal that would give it control of regional cable company Suddenlink Communications.
For the future, both landline and cable companies will 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 via landline or cable. The right value-added services, controlled via smartphones, 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. Qwest merged into CenturyLink (formerly CenturyTel). The competitive landscape shifted dramatically due to such mergers.
In addition, government regulations are evolving quickly, which will bring even bigger changes to business strategies. In both the U.S. and Europe, regulators appear to want much greater control over the practices of Internet carriers. 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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