Broadband bonanza
Monday, November 26, 2001
columns.scmp.com
ANDY CHEUNG and BOB AKRIGHT
The past 18 months are best forgotten for most telecommunications operators. As the new year draws nearer they must shrug off the recent past, with its dismal forecasts for corporate earnings, rising pessimism in the markets, and flight to liquidity by many businesses. The industry has to retake its position as the engine for global growth.
Along the way, they will find the road map has changed. New competitors, new offerings, new demands, everything is driven by a new voice - convergence. To win, they must act faster and be more flexible than competitors.
It will be a painful process. We are only at the beginning. As the rate of change gathers momentum, the leaders will find there is a long way to go and a short time to get there.
The combined impact of content, consumer behaviour, environment and technology has created a new "broadband society" among the high-technology, telecoms and media industries - that is what we call convergence.
Convergence refers to the interaction of technology, media and communications to provide rich, multimedia products and services. The emerging semiconductor, optical, storage and software technologies have reduced cost and increased performance and capacity. Advances in optical technology have also created virtually limitless cheap bandwidth.
As Level 3 chief executive Jim Crowe has said: "Optical technology is doubling in price performance perhaps every nine months and IP technology every 18 months."
Meanwhile, content has become more attractive and interesting to the consumer. Content providers are no longer constrained to one media - we can listen to music on computers, or get the latest news through the Internet or on our mobile hand-sets.
Convergence has helped us realise the dream of "enjoying ourselves at any time and any place with any device". Consumers now take more power in their dialogue with providers. The growth of active adult Internet users has stimulated the growth of worldwide e-commerce revenues. These users are expected to increase to 372 million in 2003, from 96 million in 1998. At the same time worldwide e-commerce revenues are expected to grow to US$1.4 trillion from US$11 billion.
However, we should not ignore the environmental impact on convergence. The income and wealth growth experienced in the United States in the past years has become the catalyst of the convergence and digital economy. The globalisation of telecoms and media giants will speed up information and culture exchanges, and further push convergence.
There will be more mergers and acquisitions. More media companies will branch into telecoms, while telecoms operators begin providing content services. Regional boundaries will break up as the convergence movement benefits from government deregulation.
The conversion of voice, video and data to digital format for transmission over broadband facilities will continue. A single product/service, combining elements of the previously distinct domains of communications, media, entertainment and computing, or bundled products/services, will emerge. On the service-provider level, the convergence is akin to horizontal integration - a firm amasses its skills and resources to provide converged or bundled products/services. AOL Time Warner is an example.
Undoubtedly, convergence will facilitate many new opportunities, but it also poses threats, both operational and strategic, to telecoms industry players.
On top of that, two strategic issues must be solved. First, how can these companies ensure they have the right strategy to become winners in the digital economy? By 2010, more than 50 per cent of Asian telecoms companies will have disappeared through acquisition and many other firms will be eliminated because they failed to capitalise quickly on new broadband opportunities.
In the US, six of the top 12 telecoms firms have disappeared in the past five years, with more to come. Many companies in other sectors also lost market share and profitability as Cisco, Dell Computers, General Electric and others beat them in the race to implement new Web-based business models. New broadband infrastructures will accelerate the global rate of failure and consolidation.
And then, how can governments ensure that the development of the digital economy benefits all businesses and demographic sectors as the "broadband society" intensifies competition?
Resolving these issues requires strategic agility. It is an ability to sense and respond ahead of the competition, creating maximum value with minimal risk. A company with agility can make real-time information exchange and decisions. It can detect disruptive technologies and related adoption curves in time and make changes to organisation structures and product offerings to keep up with changing conditions.
Such companies will also establish a robust risk-management mechanism. Development of strategic agility is important, especially for Chinese telecoms players with the mainland's accession to the World Trade Organisation.
Being a world player will have a direct impact on key aspects of China's telecoms industry - regulation, competition, strategy, management and talent. China is deregulating steadily. Joining the WTO will speed up deregulation. Beijing is expected to announce plans to spin off China Telecom, the dominant fixed-line operator. This and the formation of China Mobile, China Unicom, China Netcom, China Railcom, ChinaSat and Jitong, signify the beginning of a competitive market place for telecoms operators. In addition, the WTO will drive initiatives to refine the legal framework. The Ministry of Information Industry is expected to provide more comprehensive telecoms regulations for both domestic players and foreign investors.
Under the WTO agreement, foreign investors will, by 2003, be allowed to take a 50 per cent share in value-added telecoms services with no geographic restriction.
In the mobile and fixed-line sectors, 49 per cent foreign ownership is allowed by 2004 and 2007 respectively.
Emerging domestic players, such as cable-television operators and utility companies, will also benefit from the convergence process and have opportunities to share the market with incumbents and foreign competitors.
Among sub-segments, value-added service will become the first to experience large-scale filtering. There are more than 3,000 value-added service providers, with 2,000 having unclear value propositions, being small scale and with discouraging economic performances. They also lack the necessary capital for future growth. Foreign competition will speed up their elimination. Only a few value-added service providers will survive.
To meet the challenge of WTO, Chinese operators must identify proper partnership strategies in order to gain the required capital and management expertise.
A proper alliance strategy will be key to driving the globalisation of Chinese telecoms players and to gain competitive advantage.
Chinese telecoms operators own the world's largest operation network and customer base, and have the resources to acquire the most advanced technology and equipment. However, these advantages will not by themselves ensure a leading position in the global market. They need to bridge the gap on management skills, innovation capabilities and well-established performance measurement systems to attract and retain talent. They also need to continuously improve their service quality.
As the world's fastest-growing telecoms market, China clearly has huge potential. WTO has brought both opportunities and challenges. In order to survive, Chinese operators need to act faster and be more flexible.
Andy Cheung is industry leader of global services firm Andersen's Technology, Media and Communications (TMC) practice in Asia-Pacific responsible for offerings in the region. Bob Akright is an Anderson partner, based in Hong Kong, focusing on TMC companies in the Greater China area. |
