Telecoms Are Set to Boom
Europe's Telecoms Landscape Is Still Growing:
The Recent Technology Rush Is Only the Beginning
By GAUTAM NAIK
Staff Reporter of THE WALL STREET JOURNAL EUROPE
FIFTEEN YEARS AGO, Europe's telecommunications landscape was
pretty barren, at least by today's standards. Electronic mail and the World Wide
Web didn't exist. Hardly anyone owned a mobile phone. And the Next Big Thing
was a device called the facsimile machine.
Thanks to the inexorable onrush of technology, these gadgets now permeate our
lives. Many businesses see e-mail as their main link for internal communications.
Roving salesmen today wouldn't be caught without their cell phones. And thanks
to the Web, it's possible for someone to read this newspaper in Paris -- or as far
away as Ouagadougou, Burkina Faso.
And yet, these are only humble beginnings. The next wave of technological
change will come faster. It will be bigger. And it's likely to prove splashier than
anything that has gone before.
The predictions: About 15 years from now, the fax machine will almost certainly
be a museum piece. People will use their cellular phone the way they do their
regular phone, and it will cost as much to call your neighbor as to phone
Katmandu. Mobile phones will have all the smarts - and many of the features -
of today's personal computers.
Frightening Fact
The result: "Information will pervade all aspects of our lives," declares Graham
Whitehead, advanced concepts manager at British Telecommunications PLC.
"People find this frightening, but 15 years from now we'll all be asking how we
ever lived without" these devices.
Frightened or not, the denizens of Europe seem increasingly willing to embrace
the latest round of telecommunications offerings. Internet use is picking up, as
more households buy computers. Telecommunications traffic is surging. The
growth in cellular phone subscribers is relentless. If these trends continue, they
could even help the Continent narrow a long-standing "technology gap" with the
U.S. and Japan.
Several recent developments will hasten the process. Europe recently
deregulated its $160 billion telecommunications industry, triggering the arrival
of hordes of competitors vying to sell high-tech products and services at cheap
prices. The drive for a common currency will help, too, by creating a more
uniform framework between countries and their various phone companies. And
Europe is ahead of the U.S. in preparing for the launch of more powerful mobile
phones, a crucial piece in tomorrow's telecommunications jigsaw.
"The Europe-U.S. gap will narrow," predicts Robert Millington, analyst at Credit
Suisse First Boston, in London. "In the past, most communications services in
Europe could only be sold by a single [monopoly] company, which restricted
consumer choice and innovation. We're in a different game in Europe now."
Bringing On Change
Four inventions have been responsible for this vast transformation: the microchip,
fiber-optics, software and the Internet. A microchip holds huge amounts of
processing power in a tiny, thumbnail-size area. Fiber-optic links dispatch voice
and data traffic at the speed of light. Software is a relatively cheap means of
squeezing vast amounts of "intelligence" into anything that resembles a computer,
whether a tiny cellular phone or a giant telephone switch. Finally, the Internet
provides scale, and brings new technology to millions of households and
businesses.
As these innovations spread, two big changes are expected across Europe. First,
technology will become increasingly untethered. A mobile phone today is like a
modest PC, boasting processing power 100 times greater than the clunky models
introduced 15 years ago. But by the time this newspaper celebrates its 30th
birthday, that power is expected to increase another 100-fold. In fact, there's a
good chance that many readers will read the daily headlines by glancing at the
screens on their future phones.
"Cell phones will become user-friendly, and people will use them to pay bills and
reserve tickets," says Yrjo Neuvo, senior vice president in charge of product
creation at Nokia Corp. "It will be like a watch: You won't be able to live without
it."
A second big shift is the convergence of previously unrelated technologies, such
as the Internet, television and wireless phones. Nokia has already introduced a
software-driven cellular phone, called Communicator, that lets the user browse
the Web, send e-mail or a fax, and make phone calls. Now Nokia, Telefon AB
L.M. Ericsson, Siemens AG and other European telecom manufacturers are
expected to launch better and cheaper versions of the Communicator in a few
years.
"When you can mass-market a software-based product, the unit price can be
very, very low," says Douglas Smith, analyst at Salomon Smith Barney, in
London. "I suspect a lot of these new products will be remarkably affordable."
And that will mean the death of some products. The fax machine, for instance, is
destined for the dustbin of history. Consider the economics. It costs roughly $28
to send a 46-page document via overnight mail from New York to Tokyo. A fax
of the document costs almost the same, because of high international phone
rates. But the cost for dispatching the same document via e-mail? Five to 10
cents. "Facsimile as a product," declares Mr. Millington, the CSFB analyst, "is
dead three to four years from now."
'Will All Become One'
Converging technologies could hasten such extinctions. Video and music stores,
for instance, face a long-term threat. Instead of renting a video or buying a music
compact disk from a store, consumers may simply prefer to pay a small fee and
download their entertainment from an Internet site. Unlike video stores, the
Internet is open 24 hours and you never have to worry about incurring late fees.
"The TV and phone and computer and radio will all become one," says Mr.
Whitehead, the BT executive. "It is this convergence that will make the next 15
years interesting."
And what of basic phone service? The verdict among industry pundits is
near-unanimous: by the year 2113, the huge price difference between a local call
and an overseas one will disappear. Most voice calls will be made on cellular
phones, which, by then, will be almost as popular as today's "fixed" phones. Even
by 2002, "mobile phones may outnumber fixed telephones," concludes a recent
Salomon Smith Barney research report.
Indeed, when mobile phone prices plunge further, millions of people may simply
use mobile phones for all voice calls. In Israel some 20% of the population owns
a mobile phone. Cheap rates have prompted such massive use that the volume of
traditional phone calls actually fell 6.5% in the first half of last year. Scandinavian
countries are seeing a similar phenomenon, and the process could spread to other
parts of Europe.
Blurring the Lines
Ultimately, though, the distinction between traditional and mobile phones will
fade. Ericsson plans to offer a "home base station" that transforms a regular
mobile phone into a cordless device when the user is at home. This means that
mobile calls made from the home will travel over, say, BT's network, and are
billed at the same low rate as other household calls.
The boom in wireless phones has prompted some industry pundits to suggest that
traditional "fixed networks" may be doomed to extinction. Not true. For instance,
about 90% of a wireless call actually travels over a fixed network, which makes
it indispensable. And when it comes to providing data and video services, copper
and fiber lines have greater capacity and they already connect every home and
business.
Still, operators of fixed networks must spend billions to upgrade their old-style
networks in order to offer more futuristic services. The networks owned by BT
and other older phone companies were originally built to carry voice traffic and,
by and large, still do. But 15 years hence, voice traffic will be a small proportion
of that traffic; the transmission of data will reign supreme, partly because more
homes and businesses will sign up for Internet, video and other data-related
services.
Clinging to the Old
The danger is that former phone monopolies stick to old ideas and ignore the
coming shift. "They've spent 100 years designing their networks for voice [and]
still have the mindset of protecting their voice revenues," notes John Matthews, a
consultant at Ovum Ltd., a London telecom consulting firm. While voice service
now makes up roughly 75% of the traffic traveling over a dominant carrier's
network, it could fall below 50% in a few years, he says.
The early signs are there. Long-distance service has already become a cheap
commodity in the deregulated markets of the U.S. and U.K. In the rest of
Europe, not only are hordes of competitors going to drive down prices, but the
advent of Internet phone calls could force BT and others to lower their rates
further.
Tim Kelly, an analyst at the International Telecommunications Union, the
Geneva-based club of the world's phone companies, estimates that five years
from now local calls will be 20% more expensive, but long-distance rates will fall
20%, while international calls will become 50% cheaper. Fifteen years from now,
customers in truly competitive markets could pay as much for a call next door as
they would for one that travels halfway around the world. "It's the death of
distance," says Mr. Kelly.
The Internet will accelerate that process. Analysys Ltd., a technology research
firm in Cambridge, England, estimates that the volume of international phone calls
carried over the Internet will grow from virtually nothing today to more than 25%
by just 2003, "by which time the Internet telephony market will be worth at least
$7 billion," Analysys concludes.
Room for Growth
The advent of cheap Internet-based phone calls could be troubling for dominant
carriers, if it weren't for a new growth area: the Internet itself. Mr. Millington of
CSFB estimates that European telecom carriers will see their Internet-related
revenues - from leased lines, per-minute usage fees and other services - rise to
$108 billion in 2005 from $13.5 billion last year. "The Internet will be a monster
product," he says.
Arthur C. Clarke, the British science fiction writer and the first person to predict
communications satellites, isn't an easy man to surprise. But the speed and extent
of change in the telecommunications industry has astonished even him.
"Twenty years ago I would have said that the current advances were absolutely
impossible," he wrote recently. "As the century which saw the birth of both
electronics and optronics draws to a close, it would seem that everything we
wish to do in the field of communications is technically feasible. The only
limitations are financial, legal and political."
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