2007 Global Telecoms - Analyses Trends and Forecasts

All major developments occurring on a global scale relate in some way to digital media activities. To a large extent the telecoms and media industries are now being driven by the developments in this market. BuddeComm has been talking about VoIP, VoD and IPTV for many years, but traditional companies have failed to deliver these services. As a result, developments have now moved to the web where companies such as Google/YouTube, eBay/Skype, Amazon, Yahoo, MSN, News Corp/MySpace and so on are the leaders; leaving the incumbents around the world to operate in a very challenging environment. For more information, see chapter 2.1, page 20.

Telcos around the world are struggling to hold onto their old revenues and prepare themselves for the rapidly converging market place. After years of cost cutting, some telcos are starting to invest again. Key issues for the players are the decline in voice revenue and the emergence of VoIP. Attempts to move into media markets such as broadband TV and far more sophisticated delivery models (triple play) is also providing the industry with plenty of challenges.

In Asia the incumbents have lost their monopoly status in their respective marketplaces, but have generally demonstrated considerable resilience in evolving new business strategies. In North America the incumbents are witnessing a trend of declining fixed-line revenues, due mostly to ongoing competition from the mobile sector and more recently from VoIP services. Revenue for most European and Latin American incumbents has also been at best stagnant during the last few years. In Africa however, fixed-line revenues are growing in the wake of an emerging Internet and broadband market, even though this continent is more than any other dominated by the mobile sector. For more information, see chapter 1.2, page 14.

Despite the continuous barrage of information that voice remains a killer application, something we don’t dispute, fixed voice businesses around the world are under pressure. The basic voice business is still hugely profitable and cash generative for incumbents (and it supports their debt mountains). But this business is under pressure from a number of factors. By far the largest is competition. Downward price pressure is likely to reduce margins, and mobile calls continue to substitute calls over the fixed network. Medium term, there is still the threat of substitution by low-priced VoIP calls. For more information, see chapter 2.2, page 31.

In 2007 mobile continued to steam ahead in developing markets, to the extent that early signs of market saturation became evident. In the developed world, broadband, as a facilitating infrastructure, is creating a boom in video-based applications in healthcare, education, business, media, entertainment and government. In both government and business, a mindshift is taking place as to the importance of broadband. The financial market will increasingly become involved with private equity to unlock the hidden telecoms values in this utility market. For more information, see chapter 1.1, page 1.

Despite the enormous success of mobile, this segment of the market will, over time, merge into what is known as Fixed Mobile Convergence (FMC). As telecommunications networks move into content and service distribution networks, it will be broadband that will become the major infrastructure based money-spinner, both on fixed and mobile (wireless) networks. IP, once implemented on both networks – over the period between now and 2012 – will provide for a seamless integration of services delivered over these networks. For more information, see chapter 2.3, page 44.

In order for the industry players to position themselves, serious structural changes need to be made to align the current businesses towards the challenges of media and IT convergence. Furthermore, there are the cannibalisation effects of VoIP and, on top that, the access models are changing, with triple play emerging as the model forward. There is now more global consensus that the real solution is structural separation, which will lead to the development of very focused, cost-efficient infrastructure operators.

You might recall that we started to call for this solution back in 2000. For a long time BuddeComm was a voice in the wilderness, with just a few supporters in the OECD. However with broadband rapidly becoming the major driver in the telco industry, there is a growing demand for new services which cannot be delivered by the telcos. In order to properly address new customer demand, horizontal business structures instead of vertical structures are required. While many telcos are reluctant to change, a need for more cost efficiencies will eventually push them to structurally separate their organisations to allow for new opportunities and challenges. For more information, see chapter 5.3, page 90.

This report provides an insight and analyses into the trends and developments taking place in the global telecoms industry. The report provides information on the key developments in 2007, the industry as we move into 2008 and the future of Voice (in terms of Fixed, Mobile and VoIP). BuddeComm provides forecasts for the industry in 2010-2015 and analyses on the role of telecoms in a changing society. Insight into the impact of Digital Media on the industry is also included, along with an overview of the global regulatory environment. The report also explores the issues surrounding structural separation.

Key Highlights

• In 2007, telecom industry revenue will reach around $2.3 trillion. For more information, see chapter 1.1, page 1.
• There will be a significant shift in revenue streams. Based on new triple play models and video based communications, new business models will need to be developed based on advertising revenues and premium subscriptions rather than on the current commodity based charges. New revenues will flow into the telecoms market from the areas of advertising and marketing, known as permission based marketing. This will be the main revenue driver for the industry in the period beyond 2010. For more information, see chapter 2.3, page 44.

Telecommunications services revenue share by market - 2010; 2015

• Most countries now have more mobile than fixed telephone subscribers. In contrast, less than 1% of the world’s population had access to a mobile phone a decade ago, and only one third of countries had a mobile network. For more information see chapter 2.2, page 31.
• Over the last few years it has become clear that more structural separation is required. In 2007 the New Zealand government announced that it is going ahead with its plan to split Telecom New Zealand into three separate operational units to provide retail, wholesale and network services. For more information, see chapter 5.1, page 66.
• The inclusion of Intellectual Property into the WTO is severely hampering the flow of new ideas and information; it is attempting to control the dissemination of ideas, thus making the spread and sharing of them increasingly difficult. This is damaging the new economy. In the digital media industry we see this happening through DMR; there must surely be better ways to protect Intellectual Property. For more information, see chapter 3.1, page 52.
• Eventually the mobile phone as we know it today, will disappear and be replaced with a range of IP devices, which while being to able to handle voice, will predominantly be developed around other applications such as music, video, entertainment, gaming, business applications and email. For more information, see chapter 2.2.3, page 38.