Telecommunication companies around the globe, both public and private, driven by competition, are all registering strong growth.
At the beginning of 1997, a mere ten OECD countries had competitive policies, whereas 19 used monopolies to provide their telecommunication infrastructure. By early 1998 only eight countries retained monopolies, as another 21 had moved to open markets. This is bringing to the market not only new competitors, but also totally new forms of network infrastructure.
Mobile networks have become the second most important network infrastructure, with global annual growth rates above 30%. Several countries have seen a faster growth in mobile networks than in fixed networks. In countries such as Finland and Sweden (as well as in some parts of the USA) voice traffic over mobile networks is now greater than over fixed networks. According to the Siemens 1998 Fernmeldestatistik, 49 million mobile lines were added to the global networks during 1996, against 48 million fixed lines.
While large-scale fixed infrastructure projects such as those in China will secure an ongoing expansion of the global fixed network, there is clear evidence that in other markets convergence between the two and substitution is occurring. The trends that are fuelling these developments are: the demand for more convenience, simplicity and value-added features. Competition to gain new customers will lead to lower prices and lower interconnect rates.
The traditional network operators have been forced to upgrade their networks in order to be able to offer ISDN and value-added services at affordable prices, in order not to lose their customers to the newcomers. Apart from new customers, business and residential customers in countries which already have well-developed networks are also generating growth, mainly because residential customers want access to the Internet. For instance, in the United States since 1996 new telephone lines have been installed at a far faster pace than usual because of the demand for second residential lines.
At present, spending for leased lines, additional telephone lines and increased length of local calls stimulates Internet revenue. Leased lines, largely from the private network market of business users, represent an estimated 5% of the public telecommunication market, or about US$26 billion. This will increase sharply if the projected demand for ‘intranets’ – the private equivalent of the public Internet – is realised over the next several years. The OECD Communications Outlook shows that since the mid-1990s average prices for consumers for Internet access plummeted from over US$60 per month to less than US$20. On the other hand, local telephone charges, which dial-up users pay to access the Internet, have been rising across the OECD area.
In the medium- to long-term future, provision of Internet access should continue to be a very large market for telecommunication operators. Because virtually all potential Internet users are already customers of the carriers, since they own and manage existing customer access networks, they are likely to become the largest Internet service providers. The customer relationships they have already established and their skills in building networks will, in any event, make them formidable competitors in the market.
Yet, as with mobile communication, the infrastructure for Internet access will no longer be provided solely by these carriers. Alternative network providers are using cable, broadcasting and wireless technologies to develop new communication mediums. The main task for policy-makers will be to ensure that competition is on a fair and non-discriminatory basis. If all players are obliged to compete on the basis of such measures as quality, responsiveness and price, the outlook for the telecommunication market will be extremely propitious.
Cable TV networks and new IP-based data networks are increasingly offering more competition to the traditional telecommunications operators – in the UK over 2.5 million people use cable telephony. As soon as Optus in Australia gets their technical problems under control a similar surge in cable telephony will occur here. IP/telephony is set to take the world by storm with predictions that as much as 35% of all international traffic might be travelling over these networks by early in the next decade.
Other important developments here will be fax over IP and unified messaging. The demand on higher bandwidth due to new applications (WWW, teleworking, VoD) will transform the telecommunications industry. The access providers are going to meet this demand via fibre-in-the-loop, xDSL and cable modems.
In this fast-changing world there is a real concern about how the traditional operators will be able to survive. Their success currently depends on high monopolistic or semi-monopolistic profits. Prices are dropping on average at around 20%-30% per annum and there is no indication that revenues from all those new services will compensate overnight for the dramatic fall in telephone call charges.
While efficiency gains are another option used by nearly all operators to improve their balance sheets, this can’t go on forever. In the end it will mean that an always limited telecommunications pie will have to be divided up differently, with new telecommunications services providers taking up at least 50% of the retail market.
Worldwide revenue from telecommunications services and equipment – 1994-1998
1994 1995 1996 1997 1998(e) Growth 1990-1998
690 740 788 840 905 7.7% compounded
(Source: Paul Budde Communication)