Having weathered the setbacks of the dot.com burst, the telecommunications industry is on a roll. A plethora of new products and services are revolutionizing communication and enriching our daily life and demand is soaring, thanks in part to a resurgence in the Asian economy, which is fuelling the growth of the entire industry.
Buoyed by the opening up of new markets, both geographically as well as in terms of expansion of product and service offerings, the telecom industry is enjoying an unprecedented boom time. To put it in perspective, the telecom sector has grown, on average, twice the rate for the global economy between 1990 and 2004. At the macro-economic level, the contribution of telecom services to the general economy has grown rapidly from about 1.8% in 1990 to 3.3% of worldwide GDP in 2004. During this period, the mobile phone has evolved into an indispensable communication, entertainment and productivity tool, and almost surreptitiously, digital technology has pervaded every aspect of life.
Expectation is high for the growth of broadband Internet connections and 3G mobile services, considered the two hottest areas in the ICT sector today. According to ITU, the median speed of broadband Internet available worldwide was around 256 Kbit/s, but within less than two years, this had improved to over 1.4Mbit/s. By the end of 2006, some 29 countries will have service offerings with speeds of greater than 3Mbit/s.
Network operators are just beginning to reap rewards for the huge investments made in 3G a few years ago. In addition to contributing to increased sales as result of data access from mobile devices, 3G has opened a large market in mobile content - downloading of ringtones, wallpapers and games. In fact the devices themselves with ever-shortening life cycles are getting so rapidly commoditized that it is the content and value-added services that present the more lucrative opportunities. Barriers to entry are broken almost every day by creative content providers in their quest for the next killer application to take the market by storm.
Asia, with the rapid growth of economies such as China and India, is playing a pivotal role in shaping the fortunes and future of the telecom industry. Not only are other regions now looking to Asia to replicate controllable factors that drive this growth, but also home-grown technology companies from Asia are beginning to take their place on the global stage with a powerful combination of enticing content services, innovative pricing models and cutting edge technology.
How The Regions Ring In The Changes
With vastly different demographics and economic conditions, the markets of Europe, North America, Asia and Africa present their own unique set of challenges and opportunities.
Industrialized economies of the Organization for Economic Cooperation and Development (OECD) currently provide a total of more than 80% of global telecommunications revenue. Overall, the growth has been healthy and telecommunications revenues now account for over 3% of the GDP - an increase of over 50% since 1990.
Meanwhile, African states have recently overtaken the growth rate of the telecom sector in the OECD countries, with 3.2% of their GDP coming from telecommunications in 2000-2004.
However, the twin Asian economies of China and India remain poised as the engines of future growth for the telecommunications industry.
China leads the way with about 400 million mobile phone subscribers. Telecommunications revenues, which contributed less than 1% to the Chinese GDP in 1990 now makes up for over 4%. The rapid industrialization of the country as it firmly entrenched itself as the factory of the world has played a key role in pushing up market penetration closer to European levels.
On the other hand, India's burgeoning middle class, large youth population and untapped rural market, make it one of the biggest prospects for ICT companies today. Ever since the government began liberalizing the telecom space, growth has been astounding. From a mere 3.5 million mobile subscribers in 1990, there are now over 105 million.
Singapore and Hong Kong (China) on the other hand have relatively mature markets, with over 95% market penetration. 3G is just beginning to live up to its promise as customer perceptions regarding its utility and cost are reshaped.
Times Are Good, But There's More Work To Be Done
Faced with the soaring demand and opportunities in new regions, telecom firms are focusing their attention on two key factors in an effort to increase the 3G subscriber base:
Creating attractive pricing schemes for data access, and
Making available "killer" applications that exploit the large bandwidth available.
Time-based and volume-based metered pricing practices have long been the mainstay of the telecom industry; with the former used for all voice calls and the latter for packet-based services.
A third pricing model, long employed by cable operators is flat-rate pricing where the user pays a periodic subscription without bounds on the usage. This is gaining popularity for broadband offerings. Also on the horizon are advertising-funded models, where the core service itself is offered for free or at an extremely low cost in order to build a large user base that can then be monetized with targeted marketing and advertising options.
While a wide basket of pricing strategies are available, operators face the challenge of offering the right mix for their clientele. The ITU Telecom World Forum is designed to address these kinds of issues, and can be great venues for all stakeholders to come together, share experiences and formulate new strategies.
The Race To Develop The Killer App
Driven by the realization that it will be content and applications that will ultimately be the key product differentiators, all the major handset makers Motorola, Nokia and Sony Ericsson are going all out to woo developers. Besides providing technical support and tools, they also have programmes to provide seed capital to fledgling enterprises in the vibrant domain of mobile content.
As entrepreneurs bring to fruition innovative applications, they are not only unravelling the immense untapped potential of telecom technology but altering people's lifestyles along the way.
Broadband And Its Implications
With VoIP gaining in popularity, telecom operators are finding their traditional consumer base poached by cable companies offering voice services. The telecom industry is reacting to this trend, by upgrading networks to support "triple play" offerings: comprising voice, broadband internet and video services delivered through the same medium.
Verizon's FiOS project in North America is one of the boldest of such initiatives by a telecom operator. It is based on a single optical fibre link running all the way to the consumer's home, carrying everything from voice, internet data and interactive high definition TV.
Meanwhile, Asia leads the world in terms of IPTV infrastructure deployments, applications development as well as subscriber adoption. The world's largest IPTV base resides in Hong Kong, China.
Like every new market, this too is not without its challenges. While it costs very little to provide voice services over a cable network, the investment necessary to deliver television over broadband Internet connections is quite large.
All telecom firms are aiming to achieve a service that not only stems the falling fixed-line subscriber base, but also challenges cable companies in their own domain.
Market Segregation Is Key For All Stakeholders
In the mobile phone market, new models are being rolled out with features targeted at specific user groups. There are feature phones for business people, with fast email services and document editing capabilities. On the other end of the spectrum are multimedia phones, further sub divided into units with advanced imaging and/or audio capability.
In the next few years, there is likely to be further specialization as network providers offer package bundles comprising of a phone, customized content, applications and a unique pricing plan targeted for that user group. For example, one could opt for a package with a multimedia phone with huge storage space for music, Digital Rights Management (DRM) software for sharing music and a usage plan that allows limited free downloads of songs and video.
A number of developed countries today have a sizeable chunk of their population over 60, and this is a challenge and an opportunity for ICT companies. With healthcare being the primary concern for most elderly, products that combine communication facilities with reliable, non-intrusive health monitoring are expected to be in high demand.
The Impact Of User-Generated Content
Markets have traditionally been viewed in terms of supply and demand, in which vendors and service providers create value for which consumers are willing to pay. But in the emerging digital world, it is just as likely to be consumers themselves that create the value. A couple of examples:
SMS's or Short Message Services are perhaps the biggest success that telephone companies have had in persuading users to create their own value. Most recently, SMS-based voting used in competitions like American Idol/Pop Idol have generated large revenues for all stakeholders within a very short time.
The powerful combination of blogging or dissemination of personal content with social networking or "communitization" will have a strong bearing on the features and services that will be provided to users. There is a discernible trend in the use of mobile phones for creating and distributing blogs and video content while on the go.
The ubiquitous nature of mobile phones is ensuring that they play a key role in every major idea of this decade. As mobile phones evolve into versatile platforms for content exchange, telecom operators will be under pressure to deliver new, exciting content to grow their base organically.