*Financial Times. Dynamic growth shapes industry of tomorrow [G* reference]
ft.com
The relentless pace of change in
the global telecommunications
business has created, and will
continue to create, confusion
and uncertainty. The key trends
responsible for shaping
tomorrow's industry are being to
some extent obscured: it is often
difficult to see the telecoms
wood for mobile phone antennae disguised as trees.
There are, nevertheless, convulsions on a grand scale
within the industry. As Denis Gilhooly, a senior adviser
to the World Bank noted recently*: "Nowhere is the
trauma of adjustment being felt more keenly than within
the communications industry itself. After more than a
century of stable development, the structure of the
telecoms value chain is undergoing total transformation -
and it is happening in real time."
Tim Hills and David Cleevely of the Cambridge, UK,
consultancy Analysys point out**: "Telecoms is
currently unique in the way it combines rapid and huge
changes with the extent of their impact through an
ever-growing global network of connectivity of people and
processes.
"Part of this dynamism has erupted in the immense
wave of corporate mergers and restructurings currently
engulfing the telecoms industry."
The principal commercial developments driving these
profound changes are the demand for ever-increasing
bandwidth to support data transmission and the mobile
phone business, which has experienced staggering
growth across the globe. These are becoming the
cornerstones of the new industry.
Among the plethora of multimillion-dollar mergers which
have characterised the industry in the past few years,
the planned $62bn acquisition of AirTouch of the US by
Vodafone, the UK's largest mobile operator, has special
significance. It will create the world's first truly global
mobile phone company, able to carry calls on its own
networks in Europe, Asia and parts of the US.
Its emergence - and the deal is not completed yet -
begs the question whether customers will be better
served by companies offering only cellular operations or
so-called "converged" companies which offer both fixed
and mobile services with the economies of scale
available from single billing and customer care.
Hugh Small, telecoms specialist with the consultancy
A.T. Kearney, raises the interesting idea that mobile
networks may be the answer to the problem of the "local
loop", the final copper connection between exchange
and the home or office that creates a bottleneck in
telecoms networks effectively stifling competition.
The marginal cost of carrying additional fixed traffic on a
cellular network can be low, Mr Small argues: "A cellular
network carrying additional fixed traffic at negligible
marginal cost and at prices competitive against the fixed
network will always be more successful than a pure
mobile network. That is why 'fixed-mobile' convergence
will cause mobile networks to replace fixed connections
rather than complementing them," he says.
Whether or not Mr Small's idea can help to open up
markets where competition is slow to develop, it seems
unlikely that other mobile operators can allow
Vodafone-AirTouch to rule the international airwaves for
long.
Meanwhile, late last year, Iridium, a consortium led by
Motorola of the US, launched the first satellite services
to hand-held mobile phones, opening the prospect of
communication from any point on the world's surface.
There has been intense speculation over the likely
market and the number of operators who could profit
from such ventures. Competitors waiting in the wings
include GlobalStar and ICO who expect to compete their
satellite constellations over the next two years.
Important improvements in conventional cellular services
coupled with high initial costs have depressed early
demand, however, suggesting operators' predictions
may have been optimistic.
There has been the beginning of a huge increase in the
amount of bandwidth available in the world's networks,
driven chiefly by the demands of the Internet. According
to Greg Clarke, newly appointed managing director of
Cable and Wireless Communications in the UK, the
company is supplying business customers today with
single lines of greater capacity than its entire network of
a few years ago.
The latest transatlantic fibre optic cable, TAT-14, being
laid by France Telecom and Deutsche Telekom will have
a planned capacity of 640 billion bits of information a
second by 2000.
The capacity of all of this newly installed fibre can be
increased many times by a new technology, dense
wavelength division multiplexing, which enables
individual colours of light to carry bit streams of
information.
Pioneered by companies including Ciena, a specialist in
optical networking, and Lucent, the world's largest
telecoms equipment manufacturer, the technology
promises to increase the capacity of a fibre optic "pipe"
by anything from eight to more than 50 times.
For the most part, however, these pipes will not carry
conversations but data. Traditional telecoms equipment
manufacturers, with their strengths in analogue voice
switching, are increasingly under threat from computer
networking companies with experience of data
transmission.
This explains the flurry of mergers and alliances with
computer networking groups - Northern Telecom, the
Canadian group, became Nortel Networks after the
assimilation of Bay Networks: Lucent of the US acquired
Ascend, another North American manufacturer, in an
attempt to become the "undeniable leader" in the market
for next generation networks.
The coldest winds have been felt by the operators,
however. Tim Hills and David Cleevely in their study
argue that all suppliers of telecoms services are:
"participating in a globalised, highly competitive and
highly dynamic environment".
They identify four stages on the route to a new industry
structure:
First, a period of expansion during which new
participants enter the market as a result of
liberalisation while incumbent operators remain
essentially independent national organisations.
This is clearly the case in, say, Germany and the
UK where the former monopolists retain their
dominance but face an army of new competitors.
Second, an agglomeration phase when there is
increased emphasis on global considerations and
consolidation occurs through alliances, mergers
or acquisitions. Examples include the formation
of C&WC in the UK from Mercury
Communications and three cable television
groups, or the merger of Telia of Sweden and
Telenor of Norway.
Third, a period of what Hills and Cleevely call
competitive revolution, a period of jostling for
position during which many suppliers will be
forced to regroup or restructure, and;
Fourth, the emergence of a new industry
structure from the previous complex and
confusing period.
Hills and Cleevely foresee the survival of a group of
operators including a handful of suppliers capable of
transporting telecoms globally at ultra-low costs, a few
full-service suppliers operating globally and a number of
specialised network suppliers including, for example,
mobile phone operators.
They also predict the emergence and survival of rather
larger numbers of niche operators with specialist skills
and market access and the ability to tolerate lower
margins than the global suppliers.
It will mean significant realignments among the
combatants on the global battlefield.
And, as the recent takeover battle for Telecom Italia,
Europe's sixth-largest operator, that even the largest are
vulnerable and none can afford to rest on its laurels.
* Masters of the Wired World, edited by Anne Leer, FT
Pitman Publishing.
** Global Turf Wars, Tim Hills and David Cleevely,
Analysys Publications, Suite 2, Quayside, Cambridge
CB5 8AB, UK. |
