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World-wide communications is
going through a rapid change–be it technology, products and services, markets,
industry or consumer behaviour. Small and medium businesses and households are all
clamoring for more bandwidth. Demand for high-speed Internet and data networks is growing
exponentially. Only a few privileged large corporations have fiber access. Around the
world telecom markets are opening up, with new competitors and incumbents positioning
themselves to meet the demands of the new millennium.
Bandwidth Demand Explodes
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The global Internet explosion
plus rapidly growing data communications needs are fuelling broadband demand. Development
and deployment of broadband networks is driven by competition among incumbent telephone
companies, and without competitive providers, broadband needs are not likely to be met.
The number of businesses using broadband services will more than triple over the next five
years, and the number of households with broadband service will increase nine-fold. In the
year 2003, the average business using broadband services will spend about $800 per month
for broadband access, while the average broadband household subscriber will spend $35 a
month, mostly for high-speed Internet access. Broadband services will become a $160
billion world-wide business in five years as long as effective competition emerges in
global telecom markets.
The US is leading the world in
adopting broadband services and technologies. North America will have 45 percent of global
broadband service revenues in 2003, while Europe captures over one-quarter of global
broadband service revenues, and the Asia-Pacific region gains another quarter. Broadband
end-user equipment market will be over $20 billion cumulative over the next five years.
For operators and carriers,
business markets are the primary revenue generators. It is expected that business sectors
will generate nearly 90 percent of world-wide broadband service revenue. For equipment
manufacturers, however, residential broadband markets represent a huge market potential
because more than twice as many households as business firms will be using broadband
services.
Demand for broadband access
surpasses supply in telecom markets world-wide. Global broadband service revenues
generated by fixed terrestrial wireless systems are expected to approach $10 billion in
five years and $28 billion in 10 years. Cumulative end-user equipment sales are projected
to approach $4 billion by the end of 2008. Wireless broadband will be a significant player
in the local access market. The key revenue driver for wireless broadband operators will
be providing high-speed data and Internet access to urban businesses lacking fibre access
due to unavailability or the cost.
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Global interest is really taking
off (Wireless broadband is taking off globally) with potential in both developed
and developing telecom markets. In developed markets, the technology holds benefits for
new competitive operators seeking to enter the local access market. For developing
countries, wireless broadband offers state-of-the art, cost- efficient, flexible networks
that can be quickly deployed without the high cost and time involved in wireline
infrastructure projects.
In 1999, early adopters such as
the US, Canada, and Argentina are rolling out commercial networks in major cities. Other
large markets, including Japan and Germany, are conducting trials and issuing licences. By
2001, it is likely that close to 50 countries will have licensed or be moving toward
licensing broadband wireless.
WILL Gets More Active
In recent years, Wireless in
Local Loop (WILL) licensing activity has increased around the world, and operators are
actively deploying fixed WILL systems. By 2001, it is projected that fixed WILL
subscribers will exceed 10 million world-wide. Over the next few years, existing networks
will expand and further WILL licensing is expected, leading to increasingly favorable
conditions for WILL subscriber growth. Fixed WILL subscribers will approach 50 million by
2005.
Pent-up demand for basic
telephony services in the Asia-Pacific, Eastern Europe, and Latin America has created
opportunities for fixed WILL as a means to expand local access lines in these regions. By
2001, the Asia-Pacific subscriber base will account for approximately one-third of the
world’s WILL subscriber base, followed by Latin America, accounting for one-quarter,
and Eastern Europe with about 18 percent. In the short term, strong initial growth is
expected in Latin America due to active WILL licensing and new systems, particularly in
Mexico and Brazil.
In the longer term, the
Asia-Pacific is expected to increase their share of world WILL subscribers as it emerges
from its economic turmoil. By 2005, Asia-Pacific is expected to approach 20 million
subscribers, approximately 40 percent of the world WILL subscriber base. By 2005, Latin
America will account for about 20 percent of world WILL subscribers, followed by Eastern
Europe, with approximately 17 percent.
Although developing regions
account for most of world’s WILL demand, market liberalization in Western Europe is
creating increasing opportunities for competitive basic service providers, including fixed
WILL operators. It is projected that Western Europe will reach over six million WILL
subscribers by 2005, primarily on DECT, GSM, and specialized WILL networks. WILL
technologies vying for market presence include fixed analog and digital cellular/PCS,
DECT, PHS, and several specialized technologies. By 2005, CDMA (IS-95)-based WILL systems
will account for approximately 30 percent of total world subscribers, followed by DECT and
specialized technologies with about 20 percent each, and PHS and TDMA (IS-136) with just
under 10 percent each. Strong CDMA subscriber growth will be primarily driven by the
implementation and expansion of CDMA WILL networks in the Asia-Pacific and Eastern Europe.
Meanwhile, new and expanding DECT systems in Africa, the Asia-Pacific, and Western Europe
will contribute to increasing subscriber marketshare for DECT.
Homes Want Speed and Access
The promise of high-speed data
and Internet access over cable modems is becoming a reality. During the next five years,
cable modem service will expand dramatically to meet the demand of residential high-speed
Internet access in most countries. According to forecasts nearly $17 billion global
cumulative cable modem service revenues will come during 1998-2003, and there will be
nearly 20 million cable modem users world-wide in 2003. Exponential growth of high-speed
Internet households means great opportunities for Internet content, e-commerce, and
interactive multimedia. High-speed Internet access is the best new revenue opportunity for
cable operators.
Cable modem revenue is catching
up with cable television revenue in some countries. During the next five years, cumulative
cable modem service revenue will nearly equal or exceed new cable television revenue in
Germany, Netherlands, Poland, and several other countries. In the US and Canada, five-year
cumulative cable modem service revenue will equal 40 to 50 percent of cable television
revenue.
China to be Internet Leader
In just a few years, the Internet
has exploded into an essential mode for communications and distribution of information. As
the Internet has grown, the typical user has changed dramatically. While computer
professionals and college students are still important customer segments, new users are
likely to be young professionals, grandparents, and housewives. Broader market adoption of
the Internet means that new users will not be as technology oriented as early adopters,
less tolerant of difficulties accessing content, and more sensitive to pricing for
hardware and services.
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ISPs |
China’s Internet market is
already the fastest growing in Asia, and will become a global leader in the next five
years. With a population of over 1.2 billion, and a forecast installed base of over 14
million PCs by the end of 1999, the China Internet market presents an exceptional
opportunity. While penetration numbers are low today, a number of critical forces are
fueling rapid market growth. China currently has over 200 licensed ISPs, but profitability
is out of reach for many and market consolidation is imminent. The entry of local
manufacturers into China’s PC market means a growing number of urban families can
afford a PC. At the same time, Internet access costs for end-users have been lowered
significantly, putting access within reach for a larger subscriber base. While
China’s e-commerce market is just emerging, foreign and local players are already
laying the groundwork for selling goods and services on-line.
Internet Faces High Subscriber Turnover
Competition and a turbulent
market-place has resulted in a high rate of customer turnover. According to studies
dial-up access Internet Service Providers have to contend with a monthly churn-rate nearly
five times that of other competitive telecommunications service providers–such as
paging, cellular, and long-distance carriers. Of the 10 percent of subscribers that cancel
service each month, two-thirds sign up for service with another access provider. This
churn in the customer base represents a drain on the resources of the provider as this
source of revenue must be replaced and new customers must be educated. According to market
research nearly 40 percent of the home Internet users had switched providers due to access
problems, price of service and poor customer service. Among users who have switched
providers, frequent users were almost twice as likely to have switched their service
provider than occasional users. While this segment of users is the most likely to provide
incremental revenue for the provider, they are also the most critical consumers of the
services received. Better understanding of this segment offers the possibility of
increasing customer retention and expanding incremental revenue.
Increasing Competition in Wireless
Communications
The rapidly changing landscape of
the wireless telecom industry has created intense competition among cellular, paging, and
Specialized Mobile Radio (SMR) companies. Along with this competition, convergence in
services and products is rapidly becoming more commonplace. In essence, wireless companies
are all fighting for the same market. These trends will significantly impact the financial
performance of wireless carriers.
Average revenue per subscriber in
the wireless industry has been declining as prices have become more competitive. The
decrease in subscriber revenues is mainly the result of the large influx of low-usage
subscribers. Carriers must confront the challenge of declining by devising new methods to
diversify their revenue stream through value-added services while at the same remaining
competitive.
Despite the economic slowdown in
the Asia-Pacific region, wireless operators posted subscriber gains approaching 48 percent
for the region for 1998. Korea and Japan, the largest economies hit by economic slowdowns,
achieved subscriber growth of 135 percent and 24 percent, respectively. Indonesia,
achieved subscriber expansion of 16 percent. In fact, China, the emerging wireless growth
engine within Asia, remained relatively unscathed by the recent economic downturn. Over
the next five years, China is projected to add approximately 20 million subscribers
annually and will overtake Japan to become the largest Asian wireless market by the end of
the millennium. While short-term slowing of investment in infrastructure and handset sales
has happened, continued subscriber growth at this pace will re-energize these segments of
the industry.
Paging Outlook Improves
Paging carriers are under
continued pressure to become profitable in the wake of decreasing subscribers, revenue per
subscriber, and operational difficulties. Nevertheless, the outlook is beginning to
improve for some carriers due to internal restructuring, improvements in distribution, and
offerings of value-added services. While most of the paging carriers continue to operate
at a loss, the losses have been reduced considerably overall.
It is projected that the global
paging market will reach 260 million subscribers by 2003, over one and a half times the
year-end 1997 world-wide paging subscriber base of 150 million. Key determinants of the
rising demand for paging service are the widespread adoption of high-speed paging
protocols and the increasingly competitive environment across regional paging markets. The
advent of high-speed paging protocols, such as FLEX and ERMES, presents paging operators
with the opportunity to greatly increase network capacity and enhance service offerings.
Nearly all markets plan to deploy high-speed paging systems over the five-year forecast
period. FLEX technology is expected to make significant inroads in the Asia-Pacific
markets, accounting for 58 percent of the region’s subscriber base by the end of the
forecast period. Both FLEX and ERMES have been adopted in the European markets, and
together are projected to account for 52 percent of the European paging subscriber base by
2003.
 The Asia-Pacific paging
industry remains the largest world-wide and is projected to service over one-half of the
world’s total paging subscriber base by 2003. Mainland China, the region’s
engine of growth, is expected to account for 72 percent of Asia’s subscriber base and
45 percent of the global subscriber base by year-end 2003. Moderate subscriber growth
rates will allow the US to continue to be a key market throughout the five-year period,
which will largely account for North America’s 30 percent share of the total paging
subscriber base by 2003. Europe, while experiencing strong performance in nearly all of
its individual markets, will remain third behind the two industry leaders, ending the
forecast period with 17 million paging subscribers, 6 percent of the world-wide paging
subscriber base.
Cellular Stabilising
After a period of gradual
decline, the decrease in average minutes of use per mobile phone subscriber has bottomed
out and started to rise. Among mobile phone subscribers, the average monthly minutes of
use has risen for the third straight year, increasing from 100 minutes in 1996 to 143
minutes in 1998. Factors such as bundled minutes, lower prices, smaller phones, and longer
battery life are helping to drive an increase in monthly usage. The bad news for mobile
phone providers is that over 8 percent of wireless phone subscribers intend to switch
carriers within the next three months, a significant jump over 3 percent in 1993, and 5.7
percent in 1997.
Subscribers who intend to switch
are some of the most attractive subscribers for carriers.
The cellular industry created a
buzz this past year with its announcements of new alliances and devices in the mobile data
industry. On the device side, manufacturers such as Nokia and Samsung introduced the first
handsets compatible with the new Wireless Application Protocol. Meanwhile, Microsoft and
Qualcomm formed WirelessKnowledge, a JV that will develop a Windows CE operating system
for CDMA, GSM, TDMA, and Mobitex devices. Both of these headline news items will attract
more developers and equipment manufacturers to an industry, which has been slow to
develop.
By 2004, CDMA subscribers will
grow by approximately eight times its current base, TDMA subscribers will quadruple, and
GSM subscribers, currently about one-third of total subscribers, will triple. The
Asia-Pacific region is projected to account for just under half of world-wide cellular/PCS
subscribers by 2004, driven by wireless growth in China. Within this time period, Third
Generation (3G) wireless technologies will begin to offer an impressive range of new
services.
Radio Potential High
The traditional arguments for
purchasing and operating a private radio system are that commercial services offer
inadequate coverage, features, or control at a considerably higher cost. However, in many
metropolitan areas, digital wireless networks are increasing coverage areas and features
while lowering prices for high usage customers. As a result, private radio users are
re-evaluating their communications decisions. Approximately 10 percent of private radio
users indicated that they would consider switching from their current communications to
cellular or PCS.
According to a survey, private
radio communications equipment represented a large business of approximately $2.2 billion
in 1998. In the US for instance, the number of private radio users was approximately 16.3
million in 1998, roughly 13 percent of the US workforce. Leading users of private radio
systems are businesses, government agencies, and public safety entities. The greatest
obstacle to growth for the private radio industry is the lack of clean radio spectrum to
accommodate additional use—particularly in urban areas. Metropolitan-based radio
operators feel that one out of every four channels is congested. Factors contributing to
congestion include a lack of channel exclusivity and lax enforcement of private radio
licensing. As per projections, narrowband analog radio sales should swell from 3 percent
of all radio units sold in 1998 to 23 percent of radio units sold by 2004. Overall radio
unit sales are projected to be flat over the next five years.
In the US, there are over 16
million radio users and call pattern is frequent and intensive. Also, the churn rate is
low and equipment is expensive and outdated. For the above reasons, the private radio
community represents a tremendous source of future business for many wireless
communications players. Although the main application for radio users is still
push-to-talk dispatch, the increasing demands of radio users include interconnection with
the public telephone network, wireless data applications, and wide-area coverage.
Cellular/PCS, ESMR, and radio operators are seeking to serve this lucrative sub-segment of
the wireless industry.
Waiting for 3G
Today’s wireless data
capabilities are limited to low-bandwidth services, considered insufficient for mobile
multimedia. While improvements in existing network technologies will meet some of these
higher bandwidth needs, vendors are currently defining network technologies that represent
a quantum leap in transmission capability. 3G wireless tecshnologies will become available
over the next few years to serve as an extension of the existing wireless
infrastructure.