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Introduction to the Telecommunications Industry

Globally, the telecommunications industry was about a $4 trillion sector in 2010, including about $1.3 trillion in total revenues in the U.S. (These figures include equipment and related services, as well as subscriber revenues.)

Handset manufacturer LM Ericsson estimates the number of mobile subscribers worldwide at 5 billion as of July 2010. This is significant growth from about 4 billion at the end of 2008 and 1.41 billion in 2003. The base of global wireless subscribers will continue to grow rapidly, as low-cost providers are making service prices low enough to be affordable for vast numbers of people in emerging nations. Inexpensive cellphones are now indispensable to consumers from Haiti to Africa to New Guinea.

Telecommunications remains one of the major providers of employment in the world, with nearly 1 million employees in the U.S. alone.

The ITU estimates global landlines at 1.21 billion at the end of 2009, down from 1.27 at the end of 2008. This is 17.8 landlines per 100 global population. For the U.S., the FCC states there were 114 million households with wired landlines at the end of 2009. However, landline subscriptions have been falling, as more and more consumers rely on their mobile phones as their primary phone lines, and others rely on VOIP, including Skype for international long distance calls.

Several major factors are creating changes in the telecommunications sector today, including: a) a shift in business and commercial telephones to VOIP (Voice Over Internet Protocol) services, b) a shift in residential and personal use from wired services to wireless, c) intense competition between cable and wired services providers, d) steady increases in Internet usage for communications of all types, and e) wireless technologies, including more advanced smartphones, wider availability of 3G services, and 4G services that will slowly but surely roll out.

other industry touches as many technology-related business sectors as telecommunications, which, by definition, encompasses not only the traditional areas of local and long-distance telephone service, but also advanced technology-based services including wireless communications, the Internet, fiber-optics and satellites. Telecom is also deeply intertwined with entertainment of all types, including cable TV systems, since cable companies are now aggressively offering local exchange service and high-speed Internet access. The relationship between the telecom and cable sectors has become even more complex as telcos are now selling TV via IP (Internet protocol) services, competing directly against cable for consumers’ entertainment dollars.

, innovation, cost control and a reasonable approach to spending and investment will help to move the industry ahead. New cellular, cable telephony, VOIP and wireless technologies promise continuous rapid evolution of this sector and pose a massive threat to traditional landlines. The cost of a cellphone call has become a bargain worldwide. Meanwhile, competition among handset makers is more intense than ever. On the higher end, cellphone manufacturers are adding advanced new features to smartphones on a regular basis. These phones now contain significant computing power and memory. On the low end, handset makers are introducing good quality units for as little as $15 to $20 for high volume sales in emerging markets.

cellphone service has prompted tens of millions of consumers to cancel their landlines altogether, eating into traditional revenue streams at AT&T and Verizon, among others. Meanwhile, wireless access to the Internet threatens traditional DSL broadband suppliers.

more consumers recognize the promise, and good value, of phone service using VOIP, millions of households and businesses worldwide have signed up for less-expensive VOIP service as an alternative to landlines, often through their cable providers as part of a bundle of services. Several heavy hitters, such as Comcast, have jumped on the VOIP bandwagon, along with startups like Skype and Vonage.

At the same time, local phone companies, led by Verizon and AT&T, are laying fiber-optic cable directly to the neighborhood and even into the home and office in order to retain customers with promises of ultra-high-speed Internet connections and enhanced entertainment offerings online. This is the big telcos’ way of fighting back. If cellphone owners are dropping their landlines, while VOIP over cable takes even more landline customers away, then the best weapon that traditional telcos can use in their battle for market share is the Internet. AT&T and its peers are focusing on bundled service packages (combining wireless accounts, very high-speed Internet access and entertainment such as video on demand and TV via IP, in addition to VOIP or landlines). Next, service providers are offering innovative new value-added services that are accessed online. For example, consumers might respond well to bundled services that monitor home security or adjust home energy usage, or services that monitor the movements and needs of elderly family members at home. The right value-added services, controlled via cellphones and/or the Internet, could get consumers hooked, with the potential to build new revenues and stop customer turnover.

Mergers, acquisitions and other industry changes redefined telecom. AT&T and SBC merged (changing the name of the merged company to AT&T, Inc.), and MCI merged into Verizon. Sprint and Nextel have combined to create wireless giant Sprint Nextel. Qwest intends to merge into CenturyLink (formerly CenturyTel). The competitive landscape is shifting dramatically due to these mergers.

In addition, government regulations are evolving quickly, which will bring even bigger changes to business strategies. Overall, the telecommunications industry is in a state of continuous technological and economic flux driven by intense competition and new technologies.

In March 2010, FCC chairman Julius Genachowski published a proposal, the National Broadband Plan. He not only proposes to solve the problems of rural Internet access, he also has a plan called “100 Squared.” His thought is to increase Internet services in America so that 100 million homes would enjoy 100 megabit download speed and 50 megabit upload speed by 2020 (compared to an average of about 3 or 4 megabits broadband download speed, and relatively slow upload speed, as of 2009).