Telecommunications Industry’s Latest Developments and Possible Next Steps

After the telecommunications bubble burst in late 2000, the overall industry was damaged severely. The giant telecom carriers and manufacturers underwent large scale downsizing and were forced to reverse their financial forecasts and growth prospects. Many companies folded.

Further, questionable accounting practices and bankruptcies dampened investors’ confidence in the telecommunications industry. For telecom service operators, lack of capital meant delays in network enhancement and new service development. The impact on telecom equipment manufacturers will likely be huge write-offs in accounts receivable and shrinkage

of future revenues. Hence, more telecommunications consolidations may be forthcoming. The short-term outlook for the telecommunications industry will be bleak until existing losses are recovered. Is, however, the information revolution dead? Will the telecommunications economy thrive again? If so, when? In this section, we will examine the internal innovation and external forces and trends that may push the telecommunications industry back on track in the future.

2.3.1 Adopting supply chain management

The strategy for a growing economy is investment for expansion. However, for a shrinking economy, the strategy has to be cost cutting and improving efficiency. Focusing on core competency and outsourcing non-core functions has become a global trend across industries.

Dell Computer’s success strategy in the PC industry is a role model for the telecommunications industry. In this horizontal integration business model, overall operational efficiency is gained through supply chain management across all levels of suppliers. Sharing information with upstream suppliers on market trends as well as products ordered by end customers on a near real-time basis can increase production planning efficiency, reduce inventories, and speed up product delivery by upstream suppliers as well as downstream telecommunications equipment vendors. Pursuing Supply Chain Management can push costs down, drive up demand, and improve the telecommunication industry’s financial performance. In the current over-supplied telecom market, more outsourcing and partnership formation will occur in the industry, and supply chain management systems will be the key enabler for such horizontal integration.

2.3.2 Generating new revenue with SMS and MMS

In light of the uncertain 3G perspectives and many wireless carriers’ difficult financial situations, it might take several years before 3G wireless platforms can be established to deliver on promised multimedia services. Meanwhile, wireless carriers are looking for killer

applications to generate new revenue based on the existing 2.5G GPRS data platform.

Currently, SMS (Short Message Service), a text-based messaging service, has become quite popular among cellular phone users. Greetings, jokes, stock quotes, weather/flight information, and bank statements are among the many kinds of SMS services offered by wireless carriers. An enhancement to SMS is MMS (Multimedia Message Service), which allows subscribers to transmit pictures, music or video clips, as well as file transfers among mobile phone subscribers. Fortunately, such enhanced multimedia service can be offered based on the existing 2G wireless network infrastructure. It means no huge network investment is necessary to generate potentially substantial revenues for wireless carriers.

Moreover, once subscribers become familiar with and accustomed to the MMS services, they will demand faster transmission speed and wider bandwidth. By that time, broadband 3G technologies will be driven by market needs rather than a new technology looking for opportunity. The promising interactive Multimedia Message Service not only can help generate additional revenues, but can also prepare a smooth path for evolution to third- generation wireless communication (Cheng, et al., 2003).

2.3.3 Emerging wireless-LAN technology

While 3G promises to offer broadband wireless Internet access data services in the future, IEEE 802.11 wireless LAN technology is becoming increasingly available in the enterprise and public hot spots (e.g. airports, restaurants, hotels, and other public places). In addition, with the growing penetration of ADSL/cable modems into the residential market, there is a growing need to connect multiple PCs and peripherals in homes. As installation becomes easier and prices fall, wireless LAN will work well as a home network. The popularity and quick proliferation of wireless LAN can be attributed to the following factors:

1. Need to access the Internet outside the office or home

2. Popularity of notebook PCs and PDAs

3. Availability of enterprise virtual private network applications 4. High data transfer rate (e.g. 11 Mps or 54 Mps),

5. Affordable equipment prices

6. Compatibility with existing LAN protocols (IP compatible)

7. No operations license or frequency usage fees required (ISM band)

Although LANs have some potential in the wireless data service market, wireless LANs also have several disadvantages for broadband wireless Internet access, and such limitations constrain wireless LAN from becoming a broad-based public service offering. For example, LAN lacks large area coverage for seamless service; small base station coverage restricts high-speed mobility service; it lacks features such as roaming, security, and privacy protection that are expected from a public telecommunications network. These situations may improve since a few fixed-line carriers are planning to deploy wireless LANs on a large scale.

The emergence of wireless LAN has changed the landscape of existing wireless service competition, and it has negatively impacted the deployment of 3G networks. However, since the strength of 3G is in its wide-area coverage and high-speed mobility, wireless LAN could potentially complement 3G networks by providing subscribers with a variety of service capabilities in the future.

2.3.4 3G Business models for wireless services

In the 2G arenas, subscribers create their own voice content and the wireless carriers simply build wireless networks to establish connectivity between subscribers. Because 3G technologies target interactive multimedia services, business models for 3G carriers become much more complex. First of all, 3G wireless carriers need to make sure that they provide appealing information content and service capabilities, either homegrown or developed

through partnership with ICPs (Information Content Providers), in order to attract subscribers to the multimedia services. Second, because 3G handsets must process, store, and display large amounts of data, they must have specially designed operating systems (e.g. Symbian), faster CPUs, larger color displays, and more battery capacity. Consequently, the 3G-handset prices run as high as $800 dollars (Baker, 2002). Furthermore, information services face language and format compatibility issues. For example, German travelers in Spain can check weather and movie schedules back home in Berlin, but unless they understand Spanish, they can not utilize information provided in Madrid. Because the delivery of a 3G-multimedia service will involve wireless network infrastructure, information content, and CPE (customer premises equipment), the issue of interoperability among various providers is critical. Not only network transmission and protocol layers needs to interoperate, but also the presentation layer of Web services and applications need to work seamlessly in order to fulfill 3G promises.

Nevertheless, 3G handsets can roam across service providers’ boundaries, but the 3G services may not be as easily portable as expected. All these vulnerabilities are business challenges faced by 3G services providers (Baker, 2002), and they require a genuinely concerted effort among all 3G players to truly realize the potential of 3G multimedia services.

In contrast to the challenges of providing multimedia content, users themselves create the content of video telephony. Hence, mobile video telephony has the potential to be one of the killer applications for 3G. The recovery of the global economy, the emergence of 3G killer applications, the price to performance ratio of 3G services, and the availability and affordability of 3G handsets will impact the growth of 3G services.