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PA Predicts Five Telcos Will Dominate Globally



PA Consulting Group is predicting that within the next 10 years 5 major telecommunications companies will dominate markets across the globe.

Member of PA Management Group in Australia, David Roffey, made the prediction at a CEO Forum in Auckland yesterday [Wednesday 2 February]. His view could have major implications for telecommunications companies operating in the New Zealand market.

"Over recent years, the telecommunications market has become used to continuous change, however, the currently level of change is of an unprecedented scale driven largely by pricing, network infrastructure and new technology issues, including the internet," he said.

Until recently, there were around 200 telephone companies in the world now there are tens of thousands of licensed operators either building or reselling the networks of others.

"Ironically, the industry has now entered a phase of consolidation that may ultimately lead to a reduction in the number of operators, with a few huge players located overseas dominating the global market."

Mr Roffey said in the area of international telephony services, price wars will eventually squeeze out smaller operators unable to compete with some of the bigger players.

"As a result this market segment will reduce to a few high- volume, low-margin players with strong international connections into many high-traffic countries."

He said similar forces would also impact on those companies that currently operate largely on the basis of reduced rates for inland long-distance traffic - either as retailers or carriers. He said the distinction between local and national calls on cost grounds would eventually be eroded to the point where callers will simply pay the one set fee.

Mr Roffey said in the network structure area, the supply of infrastructure capacity has grown at a greater rate than recent increases in traffic demand from both voice and data applications.

"This has been supported by DWDM [dense wave division multiplexing] an explosive technological change, which has increased the traffic capacity of a single optical fibre by a factor of 3,000 over the last six years," he said.

Internationally, companies with network structures making use of this technology can sell access to these at low prices and thereby maintain their stronghold in the market.

"It is simply not worthwhile, in dollar terms, for a competitor to build further competing networks. The network owners, therefore maintain their dominant position in the market place and go on to further expand into other cities and countries by buying into local loops, with side forays into mobile, broadband, city fibre and satellite operators"

The most advanced example in this regard can be seen in the UK where an initial 100 plus broadband cable licensees have already consolidated into only three major players each covering more than 5 million homes in their franchises.

When it comes to telecommunications companies and the internet, new technologies are poised to radically change the industry, making broadband, packet networks even more attractive to customers.

PA believes that eventually all telecommunications needs will be served by a single broadband packet network. Once all media is converted to packets, there will no longer be a reason to tie services to the infrastructure that carries them.

Mr Roffey said science fiction films including 2001:A Space Odyssey and Star Trek show similar seamless communications infrastructures in action.

"In these futuristic worlds, the network is necessarily `dumb' because it is the user of the communications appliances and content sources that connects to it who controls the flow of data, not the network. Every indication points to Internet Protocol (IP) being the network protocol of choice and new telecommunications companies are currently making heavy bets that this is the case."

However, he said the bulk of traditional telecommunications companies are still resistant to the coming change, continuing to spend huge amounts of money on developing obsolescent circuit- switched telephony network.

"Those telcos left behind in the race to IP will likely find that the price of catching up is to lose their independence to the bigger operators who can bring economies of scale and marketing packages that enable rapid change."

Mr Roffey said PA's predictions carried good news for mobile network providers, as they can "fairly safely" expect to be around in some form or another in ten years time. However, further consolidation is expected in this area with a recent case in point being the mega-merger of Vodafone Airtouch which has created the first global mobile operator. This could potentially grow even larger over the next week, as Mannesmann shareholders decide whether to accept Vodafone Airtouch's NZD $300billion bid.

The only part of the operator spectrum where proliferation of operators may be true is in the area of new service offerings in the form of UMTS and satellite phones. In particular, UMTS will require significant pan-industry alignments between telcos, fixed or mobile, and more importantly content providers and packagers, probably resulting in additional operators.

Mr Roffey said an interesting example is the consortium formed by Virgin, EMI and Tesco, which is bidding for UMTS spectrum in the UK.


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