The future of telecommunications: connectivity through alliances

Business Economics, April, 1998 by David E. Raphael

By the year 2000, the global telecommunications market will grow to about $1 trillion from $700 billion of annual revenues generated during 1997. The United States and Europe will account for more than 50 percent of the total, but the Latin American and Asia and Pacific markets will almost double in size. By the end of this decade, an estimated 1.4 billion telephones will be in operation, of which about one-third will be wireless. Beyond 2000, significant uncertainty exists about the market size, market dynamics, and which companies and technologies will be the winners and losers. A number of global trends apparently influence how telecommunication megamarkets will unfold in the future.

Falling telecoms costs. Telecommunication costs have already declined from $50 in 1955 to less than $1 today for a three-minute international phone conversation. The marginal cost of sending the same information over Internet e-mail is less than 20 cents. The U.S. Federal Communications Commission has stated its intent to cut international rates by an additional 80 percent in the next five years. Fiber optics, digital transmissions, and satellite communications will push prices lower. Some sixty nation-members of the World Trade Organization agree that international telecommunication prices will decline between 30 percent and 50 percent of their current levels by 2002. Some analysts believe that large firms will be able to buy long-distance traffic at a cost of less than I cent per minute within four years. Within ten years, telecom prices will be charged on the basis of quality or bandwidth, because distance between users or the time duration of a call will be irrelevant.

Privatization. International markets are opening, slowly. Telecom monopolies are likely to permit new entrants into their markets with newer and cheaper services. Telecom privatizations amounted to almost $160 billion between 1984 and 1996, most of which were in the Asia-Pacific and Western Europe regions. In January 1998, the World Trade Agreement fired the starting gun for sixty nations to open up their telecom markets. A number of nations are relatively open to outside competition in long-distance and wireless markets, but most are reluctant to open their local voice markets. The United States and Japan have opened the doors to competition on domestic long-distance telephony. Britain, Australia, Finland, and Hong Kong are relatively open in local voice markets. Future telecom privatizations and public offerings will include Deutsche Telecom; the German government will sell an additional 23 percent of its 74 percent stake in the firm for an estimated $12 billion in 1998. France Telecom, Japan's NTT, and Taiwan's Chung Hwa Teleco are among the firms that will continue to privatize in the next two years. Privatized telecom markets, since the early 1990s, have generated more jobs and created more traffic growth than have monopoly telecom markets, according to OECD studies.

The Internet and related technologies. Today, some 30 million terminals are connected to the Internet worldwide. By the year 2001, an estimated 200 million computers and terminals will be linked to it. Almost every new computer sold today has an Internet capability. In the future, most televisions will also have some type of Internet capability. Some analysts believe that in the future, all types of applications such as automobiles, houses, furnaces, refrigerators, and even wearable computers - will be linked to the Internet and its related technologies. Today, traditional telecom services - such as telephony, facsimile, e-mail, audio and video files - are sent over the Internet at lower cost. Many of these services lack the quality and reliability of standard telecommunications, but the demand for these services appears high and will boost R&D spending for improvements. Major corporations are reluctant to put mission-critical traffic on the public Internet, but Dell and IBM are active in private intranets. General Electric buys $1 billion a year from its 1,400 suppliers through its Web site, Trading Process Network. The table below shows the number of years for each of selected markets for some of these technologies to double in size.

Selected Telecommunications Markets and Technologies

Market and Technology                    Years to Double

Internet users and applications           1/2 to 1 year
Intranets within organizations            1/2 to 1 year
Facsimile on the Internet                 1 to 2 years
Cable modems                              1 to 2 years
Communication satellites                  1 to 2 years
Telephony on the Internet                 1 to 3 years
Wireless services                         2 to 3 years
Data on local telecom services               4 years
Private networks                             5 years
Telecom equipment                            7 years
Cable-TV services                           14 years
Radio and TV services                       15 years
Voice through local telecom services        22 years

Source: Calculated from Gartner, Dataquest, ITU, AT&T, industry
reports. Market size will double in the number of years shown
above, from 1997 to 2001.