2005 Global Telecoms Analyses and Forecasts for 2006 and Beyond

2005 Global Telecoms Analyses and Forecasts for 2006 and Beyond

Telecoms growth strategies 2005
New look Telcos
The FttH market in 2005
VoIP in 2005
NGN moving into 2006
Wireless Personal Area Networks
The Digital TV market in 2005
High level strategic thinking
Structural separation
Forecasts for 2006
Telecom predictions 2010 -2015

Executive Summary

Incumbents still very much on top
It is well known that efficient high speed telecommunications are essential for the economic growth of all knowledge-based societies. New technologies in broadband and next generation networks (NGNs) are allowing for the convergence of telecommunications with IT and the media. Most incumbent telecommunications carriers are slow to adjust to this new situation. They are primarily interested in maintaining the status quo and milking their existing assets for as long as possible. They try to prevent cannibalisation at all costs and are going to extreme lengths to tame the regulators; frustrate wholesale arrangements and make life as difficult as possible for everyone who dares to compete with them. They know that only competition can force them to move faster.

In all parts of the world, they have carved out unique competitive positions for themselves. Monopolies remain strong and are even increasing, but disruptive technologies and regulations are slowly eroding the incumbents’ power base and allowing some competitors to succeed. However, their defensive delaying tactics and denials are as prevalent as they were 10 years ago, accompanied by a continuing lack of vision, infrastructure development and care for their customers.

Over the past few years, it has become clear that the regulatory environments have not delivered the vigorous competition needed in the fixed markets for the converging innovations to reach the wider public. However, there are also some bright spots. The regulator in Japan has certainly created a better competition environment in that country. The ULL regime (unbundled local loop) adopted in France is causing a boom in broadband there, and in the UK OFCOM has scored by forcing the operational separation of BT.

Interestingly, in the end it will be the incumbents that again will profit the most from these developments as they hold all the cards. In the end it is simply a reshuffling of the pack, called rebalancing.

Pent-up demand remains a feature of the industry
It is amazing that the telco crisis occurred at a time of dramatically escalating demand. The reason can firmly be laid at the feet of the incumbents, whose complacency, management style and lack of effective forward planning has denied them the ability to service the market. In the absence of the desperately needed industry restructuring, the telco crisis continued for much longer than was anticipated.

Regulators, as well as what’s left of the competition, are showing all the symptoms of battle fatigue and the incumbents are comfortably settling back into monopoly mode as profitability returns. Prices are going up. The current threats of war and terrorism are encouraging a more conservative strategy, which is undermining the new investments needed for the modernisation of the network and for innovative new services. Added to that, the financial market, severely burnt in the early 00s, is much more conservative in its investments.

In the meantime, there is pent-up demand for basic broadband access in countries with the slowest moving telcos such as Australia and New Zealand. In other countries, there is pent-up demand for ADSL2+ and better quality business broadband services, eg in the USA. In other countries, broadband TV becomes an issue with telcos buying exclusive content rights that requires good quality broadband infrastructure (e.g the Netherlands and Belgium). Paul draws on this background to present his views on future directions for incumbent carriers and recommends strategies and business models for success in a dynamic industry.

Voice services under pressure
Voice services are under pressure from VoIP, and these new voice platforms are going to have a major impact in the future. But, here too, the incumbents are successfully undermining development. Although a good quality network is needed to deliver good quality voice, they are reluctant to grant access to that network on economic viable wholesale terms. At the same time, they simply reduce their POTS prices to provide rates that are equal to or better than those provided by VoIP operators. And, once they are ready, they will provide their own triple play models over high speed networks with their own low costs VoIP bundled into that.

Mobile vs. Wireless
Mobile communications will consolidate in mature markets but continue their spectacular growth in developing countries, in Africa, Latin America and some parts of Asia (namely India and China). Mobile data, other than SMS and in countries other than Japan and Korea, will remain a niche market business. The big growth market is broadband, as has been predicted by us since the mid-1990s.

Wireless broadband will make inroads as it is developed, especially in countries with low fixed broadband penetration. The aim is now to bundle these products into triple play or quadruple play packages, which can be delivered over either fixed-line or wireless. We also discuss the interesting concepts of Wireless Personal Area Networks in this report, which question the economic viability of 3G.

Next generation networks a concept rather than a technology
In a rapidly commoditising market, it is essential to embrace the nextgen trend towards intelligent networks, which share resources and open network business models. Telcos will have to totally re-engineer their companies; upgrade infrastructure; dismantle silos (and the personal egos attached to the models) and integrate them into one NGN vision. They will also have to unravel complex constructions that made it impossible for regulators to get a transparent view of what is happening between retail and wholesale - and the lists goes in. It is much more than just another technological upgrade.

With efficiency gains of between 60-80%, telcos will heave to revalue previous investments that are now worth only a fraction of their initial costs; revalue risks in the wake of ever increasing technological developments and far less secure cash flows.

Mergers and acquisitions
These changes will inevitably lead to operational and eventual structural separation of infrastructure businesses and retail service businesses. This will lead to a period of very interesting mergers and acquisitions. While progress has been relatively slow to date, the combination of DSL, VoIP, wireless broadband, better wholesale conditions and a more effective regulatory environment are going to produce significant changes in the period 2005-2008.

Media and IT interests will be mixed into this business environment, and that will most certainly lead to a whole new level of synergies. But also within the industry, telcos and ISPs will have to merge in order to survive if they select to stay in a commodity driven marketplace. In general terms, these companies do have problems moving into value added businesses – as technologists they feel far more comfortable in commodity environments.

Fibre-to-the-home
The most suitable fixed-line broadband infrastructures are based on xDSL and Fibre-to-the-House (FttH). The technological resilience, rapidly increasing speed and a long head-start for DSL have been a setback for FttH deployment. It is most unlikely that countries with subdued infrastructure-based competition will undertake significant large-scale commercial roll-outs in the near future. The USA will be a notable exception here. Most initial FttH roll-outs are now concentrating on their DSL extensions. Green-field developments and niche markets will be the way forward. Other opportunities exist for developers, cities and states/provinces, which see FttH as an important infrastructure development and, as such, are prepared to take the lead in FttH roll-outs.

Wireless broadband (WiMAX) and powerline broadband (BPL) are creating a great deal of interest, and promise a bright future once some existing technical and standards problems are resolved.

Triple Play
In addition to the need for suitable infrastructure, the development of broadband will depend on content meeting customer demand and, despite their efforts, it is unlikely that telcos can serve this function. The media companies are more suited to this task, with the telcos providing the necessary infrastructure.

With the evolution of triple play services, fixed-line voice will become a subset of broadband. Triple play will also serve as an incentive to develop new broadband which, in turn, will provide an incentive for telcos to form closer relationships with content companies instead of trying to replace them.

VoIP is the first key element in triple play. However, despite becoming a technically acceptable product around 2003, its progress has still been reasonably slow. Based on good NGN corporate networks, VoIP is now becoming more prominent in corporate and government markets. In the residential market, it is still largely a ‘hobby’ product linked to the Internet, and the quality remains questionable. It is only when these NGN quality broadband networks become widely available that VoIP will take off. Wireless VoIP could challenge 3G towards the end of the decade.

The service that will make triple play sticky is broadband TV, and this is starting to influence the broadcasting industry. Broadcasters have been slow to embrace digital technologies, since many of the media barons feared that this would open the market up to more competition. Digital broadcasting has more to do with access to new services than with content, and allows access to the emerging IP-based broadband services. New digital-based broadcasters are rapidly moving into the areas of broadband and telecommunications in general.

Broadband TV
After legislating for the transition from analogue to digital TV, governments around the world are unable to elicit significant public interest in digital TV. Most models are based on the old broadcasting model and very few viewers so far have been prepared to pay big money for more of the same TV. The incumbent free-to-air broadcasters have also hindered its introduction so as to maintain their present infrastructures, and use their virtual monopolies on public opinion to force governments to comply. However, under the pressure of competition from broadband TV and other convergence activities, things might change in 2005 and beyond.

Looking forward to 2006, the most important issues will be the triple-play business model, the demise of the VCR and the birth of the DVR, increased demand for better user experiences in the presentation of these new services, away from PCs towards plasma screens and HDTV. The convergence of the telecoms and broadcasting infrastructures will produce some major battles in the telco/media space. WiMAX and WPAN are adding their weight to these developments from 2006 onwards.

Paul Budde provides his forecasts for the telecoms industry for five and ten year’s time. He describes revenue trends by market segment, the factors that will influence them, and the extent of that influence. Specific fields discussed are the direction of mobile, expansion of broadband infrastructure and services, and the impact of wireless broadband on the existing fixed-line services. Also described is Paul’s approach to forecasting, where the uncertainties of short-term forecasting due to fluctuations in markets and economies are met by the use of scenarios, or ‘what-ifs’.

1. EMERGING FROM THE TELCO CRISIS
1.1 Factors affecting telco emergence
1.1.1 The key drivers of growth
1.1.2 Telcos vs customers
1.1.3 Spare a thought for the poor 800-pound gorillas
1.1.4 Monopolies must be broken up
1.1.5 Anti competitive behaviour and dominance
1.1.6 Carriers and their core business
1.1.7 Rethinking business models
1.1.8 Growth driven by customer demand
1.2 Telecoms growth strategies – 2005
1.2.1 2004 – The in-between year
1.2.2 Fresh merger and acquisition activity in telco-land
1.2.3 Telcos and the entertainment market
1.2.4 Looking on the bright side of competition
1.2.5 Two types of companies emerging from the crisis
1.2.6 Nextgen infrastructure
1.2.7 Wasted energies in 3G
1.2.8 Wireless broadband disruptive parallel technologies
1.2.9 The battle for the consumer
1.2.10 Structural separation
1.3 New look telcos
1.3.1 The changing telco environment
1.3.2 Survival of the fittest
1.3.3 Regulation
1.3.4 Enterprise led recovery
1.3.5 Turning Carriers into Multi-Service Operators
1.3.6 Competitors and ULL
1.3.7 Infrastructure issues
1.3.8 The risk of telco failure
2. THE INDUSTRY IN 2005
2.1 The voice, data, broadband market in 2005
2.1.1 Infrastructure
2.1.2 Narrowband services
2.1.3 Mobile market
2.1.4 Broadband market
2.1.5 Longer-term trends
2.2 Broadband in 2005
2.2.1 Broadband scorecard mid-2005 – Analysis
2.2.2 Broadband fastest growing technology
2.2.3 Korea leading the world
2.2.4 Market issues
2.2.5 Users in the driver’s seat
2.2.6 Broadband infrastructure
2.3 The FttH market in 2005
2.3.1 Factors influencing FttH adoption
2.3.2 The current status of FttH
2.3.3 Initial drivers: utilities and local councils
2.3.4 Structural separation a must for FttH
2.3.5 The European picture in 2005
2.3.6 Asia bucking the trend
2.3.7 Conclusions
2.4 VoIP in 2005
2.4.1 The continuing importance of voice
2.4.2 Give VoIP a chance
2.4.3 VoIP needs to be underpinned by NGNs
2.4.4 Corporate markets
2.4.5 VoIP – a case of evolution, rather than revolution
2.4.6 Wireless VoIP
2.5 Broadcasting – The digital FTA market in 2005
2.5.1 The digital TV market in 2005
2.5.2 The end of analogue broadcasting
2.5.3 Not HDTV but SDTV
2.5.4 Digital TV challenging traditional broadcasters
2.5.5 Costs of digital TV slashed
2.5.6 Digital TV – the second interactive platform
2.5.7 Pricing key to digital TV
2.6 Broadcasting – The digital pay TV market in 2005
2.6.1 Introduction
2.6.2 First digital TV developments
2.6.3 Regional developments
2.6.4 Mature vs emerging markets
2.6.5 Free digital vs pay digital
2.6.6 Cross-platform competition
2.7 High-Level strategic thinking
2.7.1 Visionary elements
2.7.2 Develop strategies
2.7.3 Back to the marketplace
2.7.4 In summary
2.8 Structural separation
2.8.1 Next phase of competition
2.8.2 Disintermediation drives market size growth
2.8.3 Vertical integration – doomed to fail
2.8.4 From vertical integrated to functional organisations
2.8.5 Functional telco business model from ITU
3. FORECASTS FOR 2006
3.1 Planning for 2006
3.1.1 High-level developments
3.1.2 Three distinct segments
3.1.3 Get a 360 degree vision
3.1.4 Separation and integration
3.1.5 Industry-specific Forecasts
3.2 Longer Term Planning
3.2.1 The market in ten years time
3.2.2 Industry restructuring
3.2.3 Industry-specific forecasts
3.3 The Industry Moving into 2006
3.3.1 Telecoms revival
3.3.2 Trench warfare and guerilla activities
3.3.3 The telcos struggling with declining voice revenues
3.3.4 Consolidation is making steady progress
3.3.5 Competition not progressing
3.3.6 Broadband resale
3.3.7 VoIP offering new competition opportunities
3.3.8 Wireless broadband opportunities
3.3.9 Shake-out of the ISP market on the horizon
3.3.10 The mobile market reaching saturation
3.3.11 The utilities expanding into regional areas
3.4 The Market Moving into 2006
3.4.1 Triple Play
3.4.2 Rapidly changing voice market
3.4.3 Digital TV
3.4.4 Regional developments forging ahead
3.5 NGN, Voice, Data, Broadband moving into 2006
3.5.1 Next Generation Networks (NGN)
3.5.2 Infrastructure
3.5.3 Narrowband services
3.5.4 Mobile market
3.5.5 Broadband market
3.6 Structural Changes for 2006
3.6.1 High-level industry structures
3.6.2 Three distinct segments
3.6.3 Get a 360 degree vision
3.6.4 Separation and integration
3.6.5 Government policies and regulations
3.7 Wireless Personal Area Networks (WPANs)
3.7.1 Future scenarios
3.7.2 Future scenarios
3.8 Telecoms Predictions – 2005-2015
3.8.1 Paul Budde’s approach to forecasting
3.8.2 Long-term telecoms revenue trends – 2010-2015
3.8.3 Mobile
3.8.4 Broadband
3.8.5 Wireless vs Fixed broadband
3.8.6 Regulation – structural changes in the industry
3.8.7 So where to go from here?
4. GLOSSARY OF ABBREVIATIONS


Exhibit 1 – Nextgen telecoms
Exhibit 2 - VoIP issues
Exhibit 3 – HDTV déjà vu
Exhibit 4 – Mismatches
Exhibit 5 – Visions based on technological developments
Exhibit 6 – Keep your finger on the pulse
Exhibit 7 – Examples of imbalances between buyers and sellers
Exhibit 8 – Silicon Economics Vicious Cycle
Exhibit 9 – Vertical vs. Functional Business Models
Exhibit 10 – New public network concept
Exhibit 11 – Nextgen telecoms decision
Exhibit 12 - Triple play pricing examples
Exhibit 13 – Massive restructuring is now overdue
Exhibit 14 – Market developments not pre-empted by the industry
Exhibit 15 – Key revenue trends – period to 2015
Exhibit 16 – A changing industry structure - 2005 - 2010
Exhibit 17 – Massive restructuring is now overdue




Table 1 – Take up time to reach 10 million customers in mass market
Table 2 – Residential Broadband (BB) – growth predictions – next ten years
Table 3 – FttH by region – 2005
Table 4 – Basic pay TV subscriber prices in Europe – 2004
Table 5 – Predicted global m-commerce revenues – 2003 – 2005; 2009; 2010
Table 6 – Telecommunications services revenue by market – 2005; 2010; 2015
Table 7 – Telecommunications services revenue by product – 2005; 2010; 2015
Table 8 – Telecommunications services revenue by industry group – 2005; 2010; 2015
Table 9 – Mobile data revenue as percent of total mobile revenue forecast 2005 - 2015
Table 10 - Mobile penetration – 2005 - 2015
Table 11 - Forecasting broadband over a 10-year period
Table 12 – Residential Broadband (BB) – growth predictions – next ten years
Table 13 - Wireless as percent of fixed broadband forecast 2005 -2015