GLOBAL TELECOM: Flying on Wireless Wings

Thanks to explosive growth in wireless subscriber base, the telecom industry
worldwide grew satisfactorily during 2004-2005. Most of the cellular operators
registered growth in their ARPU, largely due to a jump in non-voice revenues
particularly SMS. The year also saw telecom industry take a sigh of relief, as
it came out of a spate of bankruptcies and accounting scandals.

According to Insight Research, the service providers' revenues touched $1.2
trillion during the year 2004-2005. Revenues from the Asia Pacific grew by 9.3
percent followed by Europe, Middle East, and Africa (EMEA) at 4.5 percent. North
America witnessed the slowest growth rate at 3.9 percent, but managed to
maintain its position as the continent with the largest telecommunication
services revenue in 2004-05. One striking thing about the North American
services market was that it grew more due to the introduction of new services
rather than the subscriber numbers.

Broadband also experienced a spurt with the subscriber base touching 150
million. DSL subscriber based touched 100 million with cable broadband numbers
reaching 41 million in 2004. This has been possible largely due to changing
regulatory landscape with the incumbents' unbundling their local loop in some
countries. Voice continued to remain the main source of revenue despite
reduction of long distance tariff.

Battle of standards continued with both GSM and CDMA associations claiming
increasing penetration.

Launch of 3G Services

3G services also gathered momentum with its launch by more than 15
operators. Hutchison was very aggressive last year with the maximum number of
launches by its 3 Service. The company's main strategy was to wean away
high-end subscribers from 2 and 2.5G operators.

The European operators, who had pumped billions of dollars for 3G spectrum
licenses, took the lead in launching the next generation services thanks to the
adequate support of the 3G-handset vendors. Most of the operators are offering
an integrated 2.5 G together with 3G. The launch of 3G got delayed in China due
to its decision to go in for a homegrown standard. Elsewhere, operators
continued to deploy 3G network.

M&A's Gather Momentum

Consolidation continued all through the year 2004-05. BT acquired Infonet,
one of the world's leading providers of international managed voice and data
network services for $965 million. The deal is subject to shareholder'
approval and regulatory clearances and is expected to complete in the first half
of 2005. Shareholders representing 97 percent of Infonet's voting share
capital have committed to support the transaction. The acquisition of Infonet is
a significant step forward in BT's strategy to address IT and networking
services needs of multi-site companies and organisations. It will greatly extend
BT's global reach and will deepen its presence in North America and Asia
Pacific.

Sprint and Nextel Communications merged to create a $35 billion company. The
new entity is called Sprint Nextel. At the time merger, together they had more
than 35 million mobile subscribers. The year also saw the acquisition of
AT&T Wireless by Cingular Wireless for a whopping $41 billion. The combined
entity will have about 46 million subscribers, therefore making it America's
largest telecom service provider. This was followed by SBC acquiring AT&T
for $16 billion and Verizon taking over MCI for $6.7 billion.

The IP Push

Steep decline in long distance tariff coupled with competitive pressures
from new carriers investing in IP forced traditional carriers to speed up their
efforts to move towards IP. AT&T decommissioned more than 100 of its
circuit-switched platforms and is expected to decommission the same amount by
the end of 2005. The idea is to move to multi service switching platforms. MCI,
Sprint, and other operators followed suit. Insight puts the VoIP revenues at the
end of 2004 at about $100 billion, up from $870 million in 1999. Independent
Internet telephony companies such as Skype, Vonage, and others established their
position in the market as potential threats to the traditional carriers. Their
subscriber base is increasing fast and they have also introduced calls from PC
to landline and Mobile phone at a nominal rate. Till March 2005, Skype managed
to accumulate more than 38 million users. It claims to add 155,000 new users
every day.

Fixed Mobile Convergence

A very important initiative aimed at enabling fixed mobile convergence
started in July 2004, with the launch of Fixed Mobile Convergence Alliance (FMCA).
FMCA is aimed at bridging the distinctions between fixed and mobile networks and
provide customers seamless connectivity which will be a combination of fixed and
wireless technologies. FMCA members include BT, Korea Telecom, Rogers Wireless
Inc., Brasil Telecom, NTT Com, and Swisscom. More carriers have evinced interest
in joining the group for furthering convergence. The alliance also aims to
impress upon the equipment vendors to develop infrastructure and access
equipment which is based on common standards.

Outlook

According to Deloitte & Touche the mobile and wireless market will
overall maintain a positive trajectory in 2005, and by year-end, there will be
close to two billion subscribers and several markets will have penetration in
excess of 100 percent. Insight predicts that over the next five years, VoP will
take an increasing share of the world's telecommunications service revenue,
but it will still only represent a small portion of total voice revenue——approximately
ten percent. According to Insight, at the end of the forecast period in 2010,
Asia Pacific revenues will contribute 32.2 percent of all global
telecommunications revenues, while North America's contribution will fall to
29.2 percent, and EMEA will fall to 31.9 percent of all global
telecommunications carrier revenue. Overcapacity continues to plague the
operators as more than 90 percent of network capacity remains unused.

Sudesh Prasad