IST 755 Telecom Industry Analysis

An Introduction: Telecommunications Industry The telecommunication services market, which includes fixed-network services and mobile services, had a value of around 1.5 trillion U.S. dollars in 2015, and is forecast to grow to almost 1.7 trillion U.S. dollars in size by 2019. The biggest markets for telecom services are the Asia/Pacific region, Europe and North America. Mobile and wireless technologies have become more prevalent in the past 15 years. The market is expected to continue to gain space in the telecommunication services industry, as the number of mobile connections worldwide is predicted to reach nine billion by 2020, about twice the amount of 2009. The total spending on wireless data telecommunication worldwide is forecasted to reach nearly 550 billion U.S. dollars by 2019.

Top Telecom Companies in the World China Mobile Country: China Sales: $104.1 billion Profits: $17.7 billion Assets: $209 billion Market value: $271.5 billion Verizon Country: United States Sales: $127.1 billion Profits: $9.6 billion Assets: $232.7 billion Market value: $202.5 billion AT&T Country: United States Sales: $132.4 billion Profits: $6.2 billion Assets: $292.8 billion Market value: $173 billion

Top Telecom companies by Revenue

Industry Demographics- World Revenues

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This statistic shows the total amount of revenue made worldwide through telecommunications services from 2005 to 2014, and also includes a forecast for 2015 through 2018.

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In 2007, revenue from telecommunications services came to a total of 957 billion euros.

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The fastest-growing telecommunications services market is the Asia-Pacific region, with an estimated value of 373 billion Euros in 2015.

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By 2017, the forecasted revenue from the telecom industry is around $1312 billion.

Market Revenue in Billion USD

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In this figure we see the major regions for our study: The Asia-Pac region, North America and Africa.

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The market has also benefited from increasingly skilled personnel and extensive investment in development of new technologies.

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The telecommunications market size has increased in the past two decades, due to cheaper and innovative technologies, such as the Internet, which in turn created high demand and unprecedented access to communication channels.

Industry Demographics

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The telecos around the world made about $1.14rillion in 2014

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Services offered: There are two main types of services provided by carriers:

Wireline Wireless services

Strategic Analysis: Porter’s Forces

Strategic Analysis: Porter’s Five Forces Threat of New Entrants:

Power of Suppliers:

Capital Intensive Industry: The biggest barrier to entry is access to finance. To cover high fixed costs, serious contenders typically require a lot of cash.

Large number of equipment manufacturers: There are a number of large equipment makers around. There are enough vendors to dilute bargaining power.

Licensing: Ownership of a telecom license can represent a huge barrier to entry. In the U.S., for instance, fledgling telecom operators must still apply to the Federal Communications Commission (FCC) to receive regulatory approval and licensing.

Limited Skilled executives: The limited pool of talented managers and engineers, especially those well versed in the latest technologies, places companies in a weak position in terms of hiring and salaries.

Operation and man power: It is important to remember that solid operating skills and management experience is fairly scarce, making entry even more difficult.

Strategic Analysis: Porter’s Five Forces Power of Buyers: Carrier options: With increased choice of telecom products and services, the bargaining power of buyers is rising. Let's face it; telephone and data services do not vary much, regardless of which companies are selling them. For the most part, basic services are treated as a commodity. This translates into customers seeking low prices from companies that offer reliable service. Switching Costs: At the same time, buyer power can vary somewhat between market segments. While switching costs are relatively low for residential telecom customers, they can get higher for larger business customers, especially those that rely more on customized products and services.

Availability of Substitutes: Cable TV and Satellite operators: Products and services from non-traditional telecom industries pose serious substitution threats. Cable TV and satellite operators now compete for buyers. The cable guys, with their own direct lines into homes, offer broadband internet services, and satellite links can substitute for high-speed business networking needs. Internet: Just as worrying for telecom operators is the internet: it is becoming a viable vehicle for cut-rate voice calls. Delivered by ISPs - not telecom operators "internet telephony" could take a big bite out of telecom companies' core voice revenues.

Strategic Analysis: Porter’s Five Forces Competitive Rivalry: Cut throat competition: The wave of industry deregulation together with the receptive capital markets of the late 1990s paved the way for a rush of new entrants. New technology is prompting a raft of substitute services. Nearly everybody already pays for phone services, so all competitors now must lure customers with lower prices and more exciting services. Low Profitability: The competition tends to drive industry profitability down. In addition to low profits, the telecom industry suffers from high exit barriers, mainly due to its specialized equipment. Networks and billing systems cannot really be used for much else, and their swift obsolescence makes liquidation pretty difficult.

Strategic Analysis: Significant Challenges faced by the telecom industry globally •

Disruptive competition is the principal industry challenge.

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Regulatory uncertainties continue to unsettle the industry.

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Customer experience management is the top strategic priority.

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Service levels and personalization can unlock greater customer centricity.

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Network quality remains a key point of differentiation.

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A new interplay of people and processes can boost agility levels.

2015 Global Telecommunications Survey Findings

• Disruptive competition is the principal industry challenge. • Regulatory uncertainties continue to unsettle the industry. • Customer experience management is the top strategic priority. • Service levels and personalization can unlock greater customer centricity. • Network quality remains a key point of differentiation. • A new interplay of people and processes can boost agility levels. • In-market consolidation is the leading driver of sector M&A. • Digital services will transform the 2020 revenue mix. • Confidence is high in TV and cloud, but IoT revenue growth potential is less certain

Strategic Analysis: Regulatory concerns •

Telecommunications is a heavily regulated sector and industry leaders are highly sensitive to uncertainties that may undermine incentives to invest.

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As mobile data traffic continues to grow in all geographies, spectrum remains very much the lifeblood of the sector, and 78% of participants believe that spectrum release and auction frameworks will be a leading regulatory issue over the next three years.

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Interestingly, net neutrality led the way as the single most important regulatory concern in years to come, cited by more than one-third of participants.

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This reflects its contentious status in a number of geographies, from the US to India, and a number of participants underlined the importance of a level playing field where operators and OTTs are subject to the same rules.

Strategic Analysis: Regulatory issues that will affect the industry •

Meanwhile, participant views on policy risks varied according to geography. For developed market operators, data privacy and protection ranked as the leading top-three challenge (cited by 75% of participants)

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While spectrum release is proportionately more pronounced among emerging market operators (78% of participants).

Strategic Analysis: Strategic Priorities for the next 3 years •

Customer experience management is emphatically the top priority for operators, with 68% of participants citing it as the number one strategic priority for their organizations, while 82% viewed it as a top-three consideration over the next three years.

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The drive to put customers front and center in everything they do is also forcing operators to focus on agility, efficiency and network quality — all must-have differentiators in a world where customers have an ever-widening set of relationships with telecommunications companies and a range of digital newcomers.

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In this light, many of the other leading answers can be seen as supporting elements on the journey toward more intuitive, convenient and trusted relationships with customers.

Strategic Analysis: Strategic Priorities for the next 3 years •

Customer experience management is emphatically the top priority for operators, with 68% of participants citing it as the number one strategic priority for their organizations, while 82% viewed it as a top-three consideration over the next three years.

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The drive to put customers front and center in everything they do is also forcing operators to focus on agility, efficiency and network quality — all must-have differentiators in a world where customers have an ever-widening set of relationships with telecommunications companies and a range of digital newcomers.

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In this light, many of the other leading answers can be seen as supporting elements on the journey toward more intuitive, convenient and trusted relationships with customers.

Demographics WORLD INTERNET USAGE STATISTICS

• We can see that about 88% of the United States has access to the internet in one form or the other. • This figure is much higher than developing regions and countries in Asia and Africa which have only about 40% and 30% penetration of internet in the country. • Thus we can say that the industries in these regions will have very different strategies since they have different priorities.

(as of NOVEMBER 30, 2015)

Internet Users

Penetration (% Population)

330,965,359

28.6 %

1,622,084,293

40.2 %

Europe

604,147,280

73.5 %

Middle East

123,172,132

52.2 %

North America

313,867,363

87.9 %

Latin America / Caribbean

344,824,199

55.9 %

27,200,530

73.2 %

3,366,261,156

46.4 %

World Regions

Africa Asia

Oceania / Australia WORLD TOTAL

Regions The United States Nigeria India

United States Telecom Industry • Over the last few years the U.S. economic performance has exceeded expectations of many in government and private industry. Many believe that the emerging telecommunications industry is one of the reasons for the performance. Telecommunications has transformed American society at every level from the household, to the shop floor, to the boardroom. Telecommunications has expanded its definition from telephone to include broadband services, high-speed data transmission, and various wireless technologies including cellular telephones and packet radio.

• This rapid evolution in telecommunications has been driven by the technological changes taking place in the information technology industries in general. These geometric increases in computer processing speed and the development and expansion of the Internet have combined to confront the traditional regulated monopoly structure of telecommunications industry in this country

Offerings by telecom companies Traditionally, telecom companies made money mainly by providing voice calling, text messaging, and Internet connectivity through wireline or landline connections. It offered its services to consumers and businesses. Now, the business is driven wireless along with wired internet, data, and business solutions Wireless In wireless, telecom companies primarily make money by selling subscription plans for voice and data. They also sell equipment—like phones, notebooks, and tablets. They provide wireless hotspots across the country. Wireline In wireline, telecom companies sell voice and data services to customers. They offer traditional landline phones and VoIP (Voice over Internet Protocol). For the Internet, they give solutions ranging from basic connectivity over the usual DSL (digital subscriber line) to high-speed connections. In home entertainment, they provide television services through IPTV (Internet Protocol television). They also sell advanced services in video conferencing, high bandwidth dedicated lines, and secured communication setups to their large customers.

Major Telecom companies in the United States •

Verizon Wireless is the largest mobile services provider in the US, with over 108.7 million customers. The main factor for its success is its customer service and network reach and reliability, which has awarded it the best J. D. Power’s Custom Satisfaction award.

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AT&T with 103 million subscribers comes in a second place in the ranking, right after Verizon, mainly for its customer services. It has the largest selection of available phones, its wireless network is extensive, with the largest 4G network within the US.

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Sprint provides calling plans that may fit customers’ needs better than the competition, with some 55 million customers, Sprint Nextel comes in last place of the top 3 ranking, mainly due to its customer service ratings being notably lower than other carriers. It emphasizes data plans over traditional voice plans, and has one of the best 4G networks in the US.

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T- Mobile Mobile telephone company based in Bellevue, Washington; subsidiary of T-Mobile International, a subsidiary of Deutsche Telekom; national provider of wireless voice, messaging and data services

Factors that influence Telecom growth • Competition has been driving innovation in the telecommunications and information technology industries at a rapid pace. • Collectively known as the information technology (IT) industry, it is one of the faster growing groups of industries in the U.S. • Growth in the industry’s contribution to GDP is impressive, but is even more so when one considers the change in price accompanying this growth. • IT prices have been dropping as the rate of change of computing and networking power has increased, which is an important distinction to other high growth industry groups where price increases have followed growth

ROE, Gross margin and Operating Margins

Number of Mobile Phone Users in the United States

Developed vs Developing Markets •

Developed market operators are proportionately more likely to cite IT-led technical improvements that can aid greater agility, while emerging market operators are relatively more concerned with peopleoriented improvements that can improve organizational effectiveness.

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Many operators in mature markets have already undergone substantial changes to their organizational structures and for some, people-related initiatives now center on new leadership roles regarding digital activities and big data.

Gross Domestic Product (2006-2014)

In this slide we are comparing the GDP per capita for the 3 countries in consideration. The United States, Nigeria and India in Green, Red and Blue respectively.

Percentage of unemployed people (2006-2014)

In this slide we are comparing the percentage of unemployed people out of the total labor force for the 3 countries in consideration: United States, Nigeria and India in Green, Red and Blue respectively.

Number of Internet users per 100 (2006-2014)

In this slide we are comparing the number of Internet users per 100 people for the 3 countries in consideration. The United States, Nigeria and India in Green, Red and Blue respectively.