World Telecommunication Day 1999 |
Should Telecom Italia and Deutsche Telekom succeed in creating the world's second-largest telephone company, it will be the biggest deal in corporate history, serving 72 million fixed-line subscribers and over 33 million mobile users in Europe and elsewhere. Its $170 million size alone is a harbinger of the importance of the telecommunications industry in the opening years of the new millennium.
What is driving this kind of consolidation in the telecommunications industry? According to Malcolm Ross, vice president of Arthur D. Little, the major drivers for consolidation include what he calls ''the -ation crisis: liberalization, globalization, privatization and de- or re-regulation'' - and electronic commerce, which he describes as ''new ways of doing other businesses by applying telecoms.''
When 8 million Americans bought products on-line during the December 1998 holiday season, that was a drop in the bucket for global commerce overall, but only a small portion of what ''doing business electronically'' will eventually mean.
Statistical breakthrough
Last year, Internet-based sales were worth some $43 billion, according to Forrester Research. The U.S. Commerce Department will begin publishing annual on-line retail sales figures for the first time this year, a reflection of the Internet's real and growing impact on the retail industry.
However, e-commerce is not just about ordering books from a well-publicized Web site or downloading software or music. It is business-to-business procurement and settlement, financial services, marketing and customer management, government services, advertising and much more. Its potential prompted IBM last year to create an Institute for Advanced Commerce (IAC) to encourage academic research into commerce in this new form.
Irving Wladawsky-Berger, general manager of IBM's Internet Division, observes that commerce is ''much more complex than simply buying and selling.'' The on-line commercial experience can range from a Victoria's Secret fashion show - so popular that the site was unable to cope with the traffic it generated - to attractions of a different kind, such as auctions in cyberspace. Auctions can be as basic as bidding for Star Trek memorabilia or as complicated as competing for multimillion-dollar government contracts. The IAC has examined more than two-dozen different forms of cyber auctions - from classic auction-house bidding to sophisticated auctions with rules to control the pace, nature and pricing of the bids. These auctions may herald a return to variable pricing models for business and consumer transactions, claims the IAC, with potential benefits for buyers.
Some analysts estimate that the total of all these on-line transactions will be worth more than $300 billion in the next half decade, and others have projected up to 10 times that figure.
Corporate procurement may take a big slice of this pie, and big corporations aren't necessarily the only ones doing the tasting. John Noakes, e-commerce business manager for Microsoft, says that medium-sized companies can also achieve considerable savings in their maintenance and replacement operations (MRO), especially for high-volume, low-value items like pencils, chairs or light bulbs. ''With packaged solutions, you don't have to be a large company to enjoy savings from MRO,'' he says.
Contrary to popular perception, more than half of all Internet users in the United States are women, and more than half of all users worldwide are outside the United States, reports International Data Corporation (IDC), a global IT research group. By 2003, only one-third of an estimated 500 million Web users will be U.S.-based, and by 2004, the majority of users will be people who are not yet using the Internet today.
''Merchants can no longer ignore the impact of the growing on-line population,'' says Jill Frankle, program manager in IDC's Internet and e-commerce strategies research program, pointing out that as the percentage of PC households accessing the Internet increases, e-commerce has the potential to grow exponentially.
''The strength of the Internet should not be underestimated,'' Ms. Frankle says. ''Now is the time for traditional merchants to offer an e-commerce distribution channel if they do not want to get left behind. If they do not, they run the risk of losing market share to the more savvy marketer.''
Three out of four retailers in the U.S. already have a presence on the Web, reports Malcolm Collins, president of Carrier Data Networks, part of Nortel Networks. Worldwide, there were 300 million Web pages in March of this year, and 1.5 million are being added daily.
So it is not by chance that the theme of this year's World Telecommunications Day (May 17) is electronic commerce, as decided by the Council of the International Telecommunication Union (ITU) last June.
E-commerce is ''a great opportunity for telcos [telecommunications operators],'' notes Ben Petrazzini, a policy analyst for the ITU. ''It will increase the intensity of communications, generating new revenues, new developments in hardware and software, and new services.''
The value-added services for both existing telecommunications operators and new entrants to the telecommunications market include Web/application hosting, commerce, security, virtual private networks based on Internet protocol, extranets and voice/fax/unified messaging. Such services, along with basic Internet access, were responsible for 53 percent growth in revenues by Internet service providers last year, says a study released last month by IDC. Another 44 percent increase is expected in 1999, ''demonstrating that the Internet is fueling the fastest growth ever seen in European telecommunications markets,'' notes the IDC.
Other benefits of e-commerce include increases in productivity, better availability of information, lower prices, global reach and lower barriers to entry for small entrepreneurs, says the ITU in its 1999 report, ''Challenges to the Network: Internet for Development.''
Electronic commerce activity is often classified into three broad activities: business-to-business (wholesale and retail), business-to-consumer (consumer retail sales) and government-to-business.
In the future, say analysts, tangible products will represent an increasing share of e-commerce. E-commerce will in effect be a service provider. According to the ITU: ''Trade in services is likely to be a more significant share of electronic commerce activity than that of digitalized products.''
Currently, one-third of on-line shopping revenues in developed countries comes from sales of PC hardware and software, according to Forrester Research; Dell Computer alone sells $1 million worth of PCs a day on its Web site. The electronic distribution of music may represent 15 percent of world sales in that huge category by 2003, estimates François-Xavier Nuttall of AudioSoft, a company working in that market. Travel is another important category (31.5 percent), and on-line travel sales are expected to reach about $30 billion in the next three years. Travel services include sale of airline tickets, car rentals, hotel reservations, cruise bookings, tour operators and destination information.
Sale of books, music, gifts and greetings represent more than one-fifth of current e-commerce, with on-line book sales alone reaching more than $30 billion by 2003, estimates Forrester Research. While Amazon.com grabs most of the headlines, the ITU points out that ''Internet bookselling is also taking off in developing nations,'' with benefits for their economies and cultural development.
Financial services in the form of on-line banking and investment and advisory services is poised for exponential growth in the next few years. More than half of the total trading volume of Charles Schwab, the largest retail stockbroker, already takes place on-line.
Claudia Flisi