Term Paper

TOPIC----------------Telecom Industry
PREPARED BY------shahid.
SECTION-------------318.
ROLL NO.------------B-60
SUBMITTED TO----Mr. Rajbir Singh
Sethi

LOVELY
SCHOOL OF BUSINESS
LOVELY
PROFESSIONAL
 UNIVERSITY.

Table of contents
Introduction
Historic Overview
Various developments
Growth cycles.
Challenges and problems lying ahead.
Analyst insight.
INTRODUCTION
Telecommunication technologies have developed in successive
generations. The first generation (1G) appeared in the 1950’s. The
second generation (2G) or GSM technology is used massively, but
challenged globally by the next (third) generation (3G) technologies. This
sequence of generations is characterised by increasing capacity (higher
transmission speeds) and richer content of the message. Further
penetration of 3G depends critically on the integration of
telecommunication services and multimedia services, which turned out
to be more complicated than most experts predicted. Four obstacles on
this expansion path can be distinguished: Firstly, after the weakened
financial position of mobile network operators, it became more difficult
to finance and construct the networks because the capital markets
questioned the profitability of these investments. This resulted in
regulatory measures to facilitate the financial viability of UMTS networks
by allowing operators to share networks and delay implementation.
Secondly, many of the futuristic product and service designs (for
example computerized homes and mobile telephones functioning as
credit cards or parking tickets) of the new economy turned out to be
more difficult and costly to develop and to market. Thirdly, many
operators were drawn into costly license auctions and mergers that
slowed down and scaled down their investments in the latest technology
and new services. Fourthly, the operators underestimated the difficulties
to develop new business models for voice and data in 3G compared with
mainly voice in 2G. Despite these obstacles the markets for mobile data
and mobile Internet have demonstrated a high and sustainable growth
rate during last decade in Europe. Most noteworthy are the immense
and surprising successes of private SMS or short messaging services,
EMS or enhanced messaging services and the rapid growth of MMS or
multimedia messaging services. Less spectacular have been the
popularity of sports, news and weather information on the go. These
markets leave ample space for a myriad of multimedia applications. So
far, technology itself seems not to be an obstacle. The initial
disappointing adoption of 2.5 and 3G mobile telecommunication seems
to be firmly rooted in the operators’ strategic errors and the limited
supply of attractive mobile data services in Europe. The succession of
newer generations’ telecommunication techniques shifted the role of the
network operators from being a network manager to a content
organizer. Newer generations make higher transmission speeds and
more and richer content possible. Upgrading existing networks is
attractive from a cost perspective, however from the user’s point of view
the richness of the services consists of two dimensions: higher speed
and richer content. Eventually given the consumers preferences the
price/quality ratio of the services determines his/her choice, while
National Regulatory Authorities (NRAs) are in charge of the welfare
effects. The paper shows how this mass market emerged, which
strategies network operators have chosen to introduce newer generation
of mobile telecommunication in a playing field increasingly influenced by
the governments with a special role for the NRA’s in breaking dominant
market positions of incumbent former monopolists.

HISTORIC OVERVIEW
The Prelude
The history of mobile telephony goes back to experiments in the US in
the 1920’s with radio telephony (Kargman, 1978, and Agar, 2003). The
first mobile phones were usually car-bound and AT&T launched in 1947 a
highway service between Boston and New York after the success of first
mobile telephone network in St. Louis (Agar, 2003). Eventually
radiotelephony became so crowded, especially in New York, that the
network operators used waiting lists while candidate customers waited
hoping to be so lucky to get a mobile phone connection (Agar, 2003).
The reason for the waiting lists was that frequency spectrum is a limited
resource. The arrival of modern automatic mobile telecommunications
systems using cell structure helped to reduce the scarcity problem by
offering a more efficient use of the frequency space. Two problems are
critical in a cell structure – roaming and hand-over. Roaming is needed
to keep track of the telephones and hand-over is needed to enable
subscribers to keep a telephone call when moving from one cell to
another. Motorola filed already in 1973 for cellular patents and the US
Federal Communication Commission (FCC) started auctions of cellular
licenses on a city-by-city basis before the break up of the Bell system in
1984. These auctions provoked so many applications that the FCC in
1982 decided to award the top thirty cities directly and to allocate the
other cites by means of lotteries (Agar, 2003). After the launch of
advanced mobile phone services or AMPS in 1978, which was an
analogue system, the first American cellular phone system came into
operation in 1979 as a trial and went into commercial operation in 1983 .
These services were basically city services and the myriad of mobile
phone companies made roaming extremely difficult in the US. Mobile
telephony developed in a slightly different manner in Europe. Sweden
was an early mover with an automatic system in service in 1956 . The
national telecommunication authorities in Scandinavia took two
important decisions in 1969-1971. The first decision was to start the
standardization work on the future analogue cellular NMT standard in
1969. A working group was set up and named the Nordic Mobile
Telephone Group, the NMT-Group . The second decision was to directly
build manual mobile telecommunication networks with nation wide
coverage to satisfy customer demand. This decision was in Sweden
accompanied with another decision to let the market free for mobile
telephones. The Nordic Mobile Telephone Groups took as a point of
departure the following system requirements: automatic in operation,
compatible, roaming between all Nordic countries, sufficient capacity,
high reliability, low-cost infrastructure, and open specification which
meant no exclusive supplier rights (Steinbock, 2001). It took more than
ten years to develop the NMT standard and it was first introduced in
Saudi-Arabia in 1981 and a few months later in the Scandinavian
countries. The possibility of roaming in the Finland, Sweden, Norway,
Denmark and Iceland since 1981-82 became a strong argument in
favour of the NMT standard .In the early 1980s there existed many
different competing mobile telephone standards. When the Department
of Trade and Industry and the two network operators in the United
Kingdom (British Telecom and Cellnet) were selecting the standard of
the new mobile telephone system they compared the NMT, with a
Japanese (analogue) standard worldwide in use since 1979 by Nippon
Telephone & Telegraph (NTT) ,the German system C450, a system
developed by Alcatel and Philips called MATS-E and the US standard
AMPS. The American standard was found to meet the requirements of
the British market – competition was secured as the standard was
available from several suppliers and it allowed sufficient capacity as it
operated at a frequency band only 70 MHz below the 900 MHz band. The
two appointed operators and the Department of Trade and Industry in
1983 decided, to modify the American standard Advanced Mobile Phone
System (AMPS) and named it Total Access Communication System
(TACS) .A third applicant for a license in the UK named Racal the
predecessor of Vodafone heavily influenced this decision. The reason for
choosing the US standard was the assumed attractive price of handsets
because of the large US
market. However Ericsson became the supplier of TACS based on its Axe
digital switch to Vodafone, while it already supplied NMT and AMPS. This
occasion made Ericsson a major player in the business of mobile
telephony .

The arrival of GSM

One of the shortcomings of the analogue systems was a serious lack of
interoperability. In order to bring interoperability and cross border
roaming on a higher level the Groupe Special Mobile (GSM), later
renamed Global System for Mobile Telecommunications, was an
initiative combining private and public governance (Pelkmans, 2001).
GSM is an open non- proprietary and interoperable digital standard for
cellular mobile systems operating in the 900 and 1800 MHz band. A first
step towards a mutual European system was taken in 1982, when the
Conference on European Posts and Telecommunications (CEPT) decided
to create the Groupe Special Mobile which was commissioned to develop
a mobile telephone standard. The European Commission considered it to
be necessary that European network operators made a commitment to
implement GSM-networks. The reason was that projections for the future
growth of mobile telephony in the latter part of the 1980s were modest
and analogue networks were expanded throughout Europe. This
commitment convinced the industry to make substantial investments in
research and development for the GSM standard. A Memorandum of
Understanding to introduce GSM networks by January 1, 1991, later put
forward to July 1, 1991, was signed in Copenhagen in 1987 by operators
and regulators from thirteen European countries (Hultén and Mölleryd,
2003) In 1989, the European Telecommunications Standardisation
Institute approved the specification of phase 1 of GSM. This ended the
(pre-standard) effort in which essential patents were registered. Philips
owned the most essential patents in this period. However Ericsson,
Alcatel, Siemens and Motorola intensified their patent activity in the
following period (from 1992 onwards). These firms controlled more than
85% of the total GSM market in the early 1990s and Motorola owned
most of the essential patents. Motorola, Ericsson and Nokia rapidly came
to dominate the mobile telephone market with Siemens and Alcatel as
other important players. (Bekkers, Duysters and Verspagen, 2002)

Market growth
Once introduced, mobile telecommunication was in strong demand. In
the 1990’s the rapid and sustained growth rate was accompanied by
profound changes in the telecommunications markets. What once was
the usual way to call someone changed from using the telephone booth
or a fixed telephone line to using a personal phone kept in the pocket or
in the handbag.
Using a phone increasingly meant using a mobile phone instead of a
fixed, a change that occurred in the period 1993-2002

Some reasons for the strong uptake in mobile phones

An important driver of demand is price decreases. This was also true for
the mobile telephone market. Additional support to the strong market
growth came from the Internet revolution and worldwide liberalization,
privatization and deregulation of the telecommunication markets. The
aggregate price of mobile telecommunications has decreased
substantially (see below) and the more convenient handsets using
smaller more powerful batteries eventually led to different “mobile
cultures”. They reinforced already existing trends as the Walkman and
nomadic computing: cfr. rhizomatic identity (Deleuze and Guattari,
1976), nomadic identity (Deleuze and Guattari, 1980), interconnected
nomadism (Braidotti, 1994) and the SMS text culture (Agar,
2003) to mention a few. With MMS an instant mobile culture came to life:
blogging your own pictures while on the move thereby showing others
where you are and what you see.
Although price decreases and the emergence of mobile cultures are
important drivers, ‘being in constant touch’ is today is a very common
need among people around the world (Agar, 2003) as is the case with
‘diffuse expressive’ communication (Geser,2004). The mobile phone has
become a symbol of status and fashion, the use of a mobile phone is
also a part of young people’s consumption style, incidentally to a large
part paid by their parents (Wilska, 2003). Differences among countries
are quite remarkable as the behaviour with regard to SMS and MMS
shows. Norwegians, Danes, Dutch and Germans send much more of SMS
and MMS compared with the countries in southern Europe. (Smoreda
and Thomas, 2001 and Mante Meijer, 2001) In Sweden nearly 40 million
MMS were sent in 2005, an increase of 45 % compared with 2004 and
with 600 % compared with 2003. Basically MMS follows a similar growth
pattern as SMS in the late 1990s. . In Norway 91 million MMS were sent
in 2005 approximately 26 % more than 2004. . To some extent
differences in SMS use can be explained by prices – Danes and
Norwegians pay less per SMS and send many more SMS than Swedes
that pay much more. The figures for 2005 is compelling reading,
Swedish mobile telephone users send on average 19.7 SMS per month
compared with 131.3 SMS per month in Denmark, 81.5 SMS in Norway
and 42.7 SMS in Finland. According to the Swedish regulator Telia
charges nearly four times more for a SMS in Sweden than in Denmark
and 5 percent more in Sweden than in Norway.

MIGRATION TO THE NEXT GENERATION MOBILE

TELECOMMUNICATION: FROM 2G TO 3G
Migrating from one to another technology can be done in several ways.
The network operators rapidly adopted GPRS but there are more
possible transitions models that firms can use to upgrade the mobile
technology for faster data rates:
o Gradually upgrading the network, a general purpose technology type
of argument
o Big leap forward, introduction of the new technology with a big bang,
a
quality of service type of argument.
o Alternative routes especially in urbanised areas

Migration from GSM to UMTS can be done in small steps or at once. An

example of such a small step is the upgrading of a GSM network with
GPRS as is applied in the i-mode concept of NTT DoCoMo and introduced
in Europe in 2002. An example of taking the big leap forward is the
concept of Hutchinson 3G in the UK, Italy, Sweden and several other
countries. Subsequent generations of mobile telecommunication can be
characterised by
increased data rates and enhanced functionality. The analogue first
generation NMT-mobile telephony was able to carry voice only, while the
second-generation GSM mobile telecommunication added first SMS and
WAP to its functionality. Stepping from one generation into the next
requires an upgraded network.
An example of the upgrade strategy is applying the so-called EDGE-
technologies to an existing GSM network. EDGE or enhanced data rates
for GSM evolution increases the data rates up to 348Kbit/s from 9.6
Kbit/s in the original GSM (Hommen, 2003). This is stepping from the
small area 2G in the left in Figure 4 towards the middle in the adjacent
3G area. This migration can be implemented without any major
investment (Furuskar, et. al. 1999). Several other developments of
wireless local and personal area networks also make an increase of the
data rate up to 2Mbits/s possible. This is the 3G area in the middle of
Figure 4 corresponding with smaller areas covered by picocells. The
general idea is that wireless telecommunication can be accessed from
several positions: using an operator’s network, using a (wireless) local
network or (W)LAN or even a personal area network (PAN) using
Bluetooth technologies delivering higher dates rates. According the
Figure 4 it is envisaged that data rates up to 200 Mbps are possible in
future higher generations (4G) networks, but this is not intended to be
the fixed upper limit in the speed of data transmission in the future.

From the operators point of view, upgrading the existing network is

attractive as a migration model because it is cheap and needs only small
complementary steps. This evolutionary approach is based on the idea
that there should be a gradual transition from GSM towards UMTS, this
was agreed upon within ETSI (Samukic, 1998). UMTS operates at much
higher data rates than GSM. The GSM data rates increase from a
maximum 9.6 Kbps to 144 Kbps in rural areas to 384 Kbps in urban
areas and even up to 1.92 Mbps indoors using picocells. This sequence
does not stop here; HSPDA is a mobile telephony protocol that allows
(downlink) data rates up to 14.4 Mbps.
These dramatically improved data rates however carry a disadvantage
that looms large. Upgrading means that the network operator commits
as much as is possible to its old –lets say 2G- infrastructure carrying
voice and a little data traffic induced by SMS. Next generation mobile
telecommunication not only enhances the date rates but also integrates
several services and if this element lacks or gets insufficient attention
then the operators are delivering something less than what is
technologically possible and expected by customers, because of their
experiences with the possibilities of the Internet using PC’s, laptops and
palmtops.

THE STORY OF GROWTH

THE INDUSTRY
In truth, the telecom industry of 2008 bears scant resemblance to the
industry a decade ago. Not only have some old names disappeared and
others been taken by new owners, but many of today’s significant
competitors did not even exist when the 1996 statute was enacted. And
moving beyond the identities of the players, the entire structure of the
industry has been radically transformed.
In 1996, the telecom industry still was characterized by distinct
segments (or “silos”). For example, there was a separate long distance
market in which AT&T maintained better than a 50 percent market
share. Local telephone service was dominated by GTE and 7 Regional
Bell Operating Companies (divested from the Bell System 12 years
earlier), which enjoyed a legally protected monopoly in many states.
The major wireless players were the two original cellular operators in
each market, and cellular service was still considered a luxury, with only
34 million subscribers nationwide – about one-sixth the number today.
In the cable industry, several large, non-overlapping providers of
multichannel video services were operating but with no competitive
options, and satellite TV was just getting started. Similarly, the Internet
was in its infancy for commercial purposes.
TURNING TO THE REGULATORY ENVIRONMENT
The central figure in telecom regulation was not Congress or the FCC
but, instead, Judge Harold Greene of the U.S. District Court for the
District of Columbia. Judge Greene presided with great vigor over the
Modified Final Judgment—the consent decree that ended the federal
government’s antitrust suit against the Bell System. And he maintained
a tight rein on the Bells for fear that they would extend their local
telephone monopolies into other, potentially more competitive markets.
The 1996 Act
Against this background, Congress passed the Telecommunications Act
of 1996, an over 220-page statute that significantly changed the rules
governing virtually every corner of the telecom industry. The 1996 Act’s
purpose was sweeping yet plainly worded: “To provide for a pro-
competitive, de-regulatory national policy framework designed to
accelerate … [the] deployment of advanced … services and open all
telecommunications markets to competition.” To this end, the Act
sought to eliminate boundaries between industry segments in an effort
to extend competition to previously monopolistic areas, such as local
telephone and cable television service. Given the strong opposing
lobbying forces, the complexity of the industry (and, indeed, of the Act
itself), and the billions of dollars riding on the interpretation of particular
statutory provisions, it is not surprising that the legislation spawned
controversy and litigation virtually from the moment it was signed into
law. Indeed, for telecom and appellate lawyers, it might be said that the
1996 Act is “the gift that keeps on giving.” Yet as the court battles
raged—and even as they continue to do so today—technology and the
industry have developed in ways that were wholly unforeseeable in
1996.
WHAT HAS CHANGED SINCE 1996
In the last 10 years, every segment of the telecom industry has
undergone a radical transformation. In fact, it is difficult to say today
how much longer there will even be discrete industry segments. For
example, it no longer makes sense to speak of a separate long distance
market. More than half of all interstate calls are made from cell phones.
Similarly, the majority of landline long distance service users now buy
bundles of local and long distance calling for a single monthly price, so
that the incremental cost of an interstate call is zero.
Similarly, the local telephone market is under siege from a multitude of
technologies operating independently of the traditional local network,
and primary providers like Verizon and AT&T (SBC) are losing 6-8
percent of their lines every year. There are now more wireless than
wireline subscribers, almost 10 percent of all wireless customers do not
even have a landline telephone, and analysts predict that one-third of
all telephone customers will drop their landline phones by 2010. Cable
television companies are aggressively entering the local telephone
market as part of their bundled service offerings. There are roughly 6
million cable telephony customers today, and some analysts expect that
number to quadruple over the next few years. And e-mail and instant
messaging traffic undoubtedly are supplanting huge amounts of local
telephone traffic.
A whole new broadband Internet access market has developed since
1996, with tens of millions of customers conducting every manner of
business and social interaction over the World Wide Web at speeds up
to 200 times faster than the best available when the 1996 Act was
passed. Cable companies and telephone providers are competing head-
to-head in this market, and a host of other technologies—including
broadband over powerline, WiMax, WiFi, and broadband mobile wireless
—offer still further choices for consumers.
At the same time, and conversely, cable’s dominance over the video
market has come under serious attack—first (and still) from satellite
providers DirecTV and EchoStar, and now by Verizon and other
telephone companies which are making bet-the-company investments
in this sector.

INDIAN TELECOMMUNICATION STORY: FROM 10 MILLION TO 150

MILLION MOBILE SUBSCRIBERS IN 5 YEARS.
Yes, that’s true. Indian telecommunication Industry is one of the fastest
growing telecom market in the world. The mobile sector has grown from
around 10 million subscribers in 2002 to reach 150 million by early 2007
registering an average growth of over 90% yoy. The two major reasons
that have fuelled this growth are low tariffs coupled with falling handset
prices.
Surprisingly, CDMA market has increased it market share upto 30%
thanks to Reliance Communication. However, across the globe, CDMA
has been loosing out numbers to popular GSM technology, contrary to
the scenario in India.
The other reason that has tremendously helped the telecom Industry is
the regulatory changes and reforms that have been pushed for last 10
years by successive Indian governments. According to Telecom
Regulatory Authority of India (TRAI) the rate of market expansion would
increase with further regulatory and structural reforms.
Even though the fixed line market share has been dropping consistently,
the overall (fixed and mobile) subscribers has risen to more than 200
million by first quarter of 2007. The telecom reforms have allowed the
foreign telecommunication companies to enter Indian market which has
still got huge potential. International telecom companies like Vodafone
have made entry into Indian market in a big way.
Currently the Indian Telecommunication market is valued at around
$100 billion (Rupees 400,000 crore). Two telecom players dominate this
market - Bharti Airtel with 27% market share and Reliance
Communication with 20% along with other players like BSNL (Bharat
Sanchar Nigam Limited) and AT&T.
One segment of the market that has been puzzling is broadband
Internet. Despite the manner in which the countrys Internet market has
been booming, India’s move into high-speed broadband Internet access
has been distinctly slow. And, while there appears to be considerable
enthusiasm amongst the population for the Internet itself, this has not
been reflected in broadband subscription numbers. In 2006 India
witnessed a good surge in broadband users with the total subscriber
base in the country expanding by almost 200% to just over 2 million by
years end. Despite this surge, broadband penetration in India still
remains around only 0.2%; broadband services still account for only
25% of the total Internet subscriber base, still in itself comparatively
low.
The Ministry of Communications and Information Technology (MCIT) is
has very aggressive plans to increase the pace of growth, targeting 250
million telephone subscribers by end-2007 and 500 million by 2010.
Most of the expansion in subscribers is set to occur in rural India. India’s
rural telephone density has been languishing at around 1.9%;
So, if 70% of total population is rural, the scope for growth in this
Industry is unprecedented.
The global Telecom industry is undergoing significant transformation.
Easing of the regulatory environment, rapid technological
advancements, increased acceptance and use of new products and
services by consumers, emergence of new burgeoning markets have all
come together to usher in an era of rapid change and growth.
However, this state has intensified existing challenges and created new
ones for the telecom operators, content providers and the infrastructure
equipment manufacturers. Some of the key challenges faced are:
1) Customer churn reduction and new customer acquisition
2) Revenue enhancement
3) Reducing time-to-market in introduction of new products and services
4) Reducing the cost of ownership
5) Flexible and scaleable technological implementations that can be
efficiently re-configured to adapt to rapidly evolving business needs
6) Optimize the overall cost of doing business
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Design and development of PBX functionality for media gateway
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Design and implementation of key network management system
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Design and implementation of RSVP protocols for video streaming
servers and integration with IP stack
Design and implementation of SNMP based network and element
management system for normal and gigabit switched routers
Design and development of router configuration tool capable of network
discovery, network planning and router configuration for series of
routers, switches and hubs of telecom OEMs
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capable of network discovery, network analysis and simulation, network
monitoring and network congestion control

CHALLENGES AND PROBLEMS LYING UNDER WAY

The Challenges Ahead
In my view, the main policy challenges facing the telecommunications
industry today result from the demarcation lines in the 1996 Act which
no longer make sense in a converged, IP-centric marketplace. Even
though the 1996 legislation paid lip service to convergence, it still
presumed that historically distinct market segments would remain
separate, operating under their own unique rules even when providing
services that compete with one another. The Act also perpetuated a
distinction between “telecommunications services,” which are subject to
traditional common carrier regulation, and “information services,” which
are not so regulated. And the statute preserved the longstanding dual
jurisdictional scheme, under which the FCC regulates interstate services
and the states oversee intrastate offerings.
With convergence, these core precepts have become more and more
untenable. The fact that all types of providers now offer all types of
services leads to substantial uncertainty as to how any particular
offering should be regulated. For example, if a telephone company
provides broadband Internet access, should it be regulated the same as
a cable or wireless operator offering that service? The FCC has tried
mightily to bring about some form of regulatory parity but its ability to
do so has been severely constrained by the Act’s preexisting service
categories. Similarly, functionally equivalent services can be offered
over different technical platforms, some historically regulated and
others unregulated. Moreover, new services such as VoIP are not
susceptible to easy jurisdictional classification.
The answer to these conundrums may lie in new, innovative approaches
to regulation and legislation. In this regard, serious efforts to pass
broadband-friendly telecom legislation are now underway in both
Houses of Congress—all of which may bear fruit in the next year or so,
depending on how ambitious the legislators decide to be. As I see it, a
key lesson of the 1996 Act experience is that highly detailed legislation
has considerable difficulty in keeping up with a dynamic technology.
Accordingly, what may make sense this time around is a much briefer
statute that establishes guiding principles in a technology-neutral
manner, with an eye to eliminating remaining federal and state barriers
to broadband investment. Congress (and the FCC, using the authority
that it has) also might be wise to focus on a few key areas that, if left
unaddressed, could threaten to impede such investment. In the time
remaining, let me focus on just three such issues: universal service, the
local franchise process and, very briefly (given the next panel
discussion), “net neutrality."

Universal Service Reform

Turning first to universal service, it has been a longstanding policy in
this country that all consumers should have access to affordable, high
quality telephone service. That policy is threatened today by two
developments: first, the universal service fund is rapidly growing—and
the line item on consumers’ bills to support universal service continues
to increase—even though competition is driving basic phone rates
down. And second, new technologies such as VoIP are diverting traffic
from traditional phone networks; and yet, many providers of these
offerings are not contributing to universal service. Policy-makers—
either the FCC or Congress—need to act quickly to limit the size of the
fund and to adopt a new means of supporting universal service that
does not draw distinctions among classes of service providers and
technologies.
Franchising Reform
There are more than 30,000 local franchise authorities (“LFAs”) in the
United States today, and any new entrant seeking to provide
widespread video service must negotiate with a large subset of them.
All of this can add considerable delay and expense to the already
substantial risk and resources inherent in building a new broadband
network. While state and local authorities are beginning to respond to
the new environment, progress has been sometimes ad hoc and
uneven. Likewise, the FCC has initiated a proceeding to consider ways
of streamlining the local franchise process, but many municipalities and
incumbent providers have questioned its authority to do so. Thus,
federal legislators may want to focus on clearing away remaining
barriers to entry posed by unnecessary, multi-tiered regulation.
Congress preempted state regulation of wireless service rates and entry
in 1993, and the result has been a robustly competitive and innovative
industry that has thrived beyond anyone’s most optimistic expectations.
Doing something similar in the video marketplace—for all participants—
could yield equivalent benefits.
Network Neutrality
Many parties want telecom reform legislation to include provisions
assuring “net neutrality.” To some, this phrase denotes a legal
requirement protecting consumer access to content, applications, and
services offered over the Internet. To others, it might mean a ban on
any disparate treatment of different content or application providers by
network owners.My own view is that policy-makers should proceed with
caution in this area and should ask themselves such questions as: are
binding rules really needed at this time? Will they chill investment and
perhaps even impair service quality? And will such regulations possibly
restrict the ability of broadband operators to strike creative deals with
downstream content providers and deter deployment of next-generation
networks? Accordingly, I believe that Chairman Martin and his FCC
colleagues were wise to issue a non-binding policy statement on net
neutrality which, in a rapidly changing marketplace, stops short of
imposing binding rules absent verifiable evidence of consumer harm.
PORTER'S 5 FORCES ANALYSIS FOR TELECOMMUNICATION
INDUSTRY
Threat of New Entrants. It comes as no surprise that in the capital-
intensive telecom industry the biggest barrier to entry is access to
finance. To cover high fixed costs, serious contenders typically require a
lot of cash. When capital markets are generous, the threat of
competitive entrants escalates. When financing opportunities are less
readily available, the pace of entry slows. Meanwhile, 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. There is also a finite amount of "good" radio spectrum that
lends itself to mobile voice and data applications. In addition, it is
important to remember that solid operating skills and management
experience is fairly scarce, making entry even more difficult.
Power of Suppliers. At first glance, it might look like telecom
equipment suppliers have considerable bargaining power over telecom
operators. Indeed, without high-tech broadband switching equipment,
fiber-optic cables, mobile handsets and billing software, telecom
operators would not be able to do the job of transmitting voice and data
from place to place. But there are actually a number of large equipment
makers around. There are enough vendors, arguably, to dilute
bargaining power. 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.
Power of Buyers. 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. 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. 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.
Railways and energy utility companies are laying miles of high-capacity
telecom network alongside their own track and pipeline assets. 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.
Competitive Rivalry. Competition is "cut throat". 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. This 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.
LOOKING AHEAD
Finally, let me offer some closing thoughts on where the
telecommunications industry and regulation might stand 10 years from
now:
The dual federal/state regulatory system may need to be transformed
because competition in all segments of the market will obviate the need
for rate and entry regulation. However, the states likely will continue to
play important roles—e.g., in consumer protection, perhaps under a set
of national consumer standards governing such issues as customer
proprietary network information and truth in billing.
The FCC’s responsibilities also are apt to change, with primary focus on
assuring that new services have enough spectrum and also guarding
against interference among different uses of the airwaves.
The leading telecommunications providers today will still be around in
some form in 2016. But emerging companies—probably a few that we
have not even heard of today—may assume key positions in the
telecom industry of the future.
ANALYST INSIGHT
It is hard to avoid the conclusion that size matters in telecom. It is an
expensive business; contenders need to be large enough and produce
sufficient cash flow to absorb the costs of expanding networks and
services that become obsolete seemingly overnight. Transmission
systems need to be replaced as frequently as every two years. Big
companies that own extensive networks - especially local networks that
stretch directly into customers' homes and businesses - are less reliant
on interconnecting with other companies to get calls and data to their
final destinations. By contrast, smaller players must pay for
interconnection more often in order to finish the job. For little operators
hoping to grow big some day, the financial challenges of keeping up
with rapid technological change and depreciation can be monumental.
Earnings can be a tricky issue when analyzing telecom companies. Many
companies have little or no earnings to speak of. Analysts, as a result,
are often forced to turn to measures besides price-earnings ratio (P/E) to
gauge valuation.
Price-to-sales ratio (price/sales) is the probably simplest of the valuation
approaches: take the market capitalization of a company and divide it
by sales over the past 12 months. No estimates are involved. The lower
the ratio, the better. Price/sales is a reasonably effective alternative
when evaluating telecom companies that have no earnings; it is also
useful in evaluating mature companies.
Another popular performance yardstick is EBITDA. EBITDA provides a
way for investors to gauge the profit performance and operating results
of telecom companies with large capital expenses. Companies that have
spent heavily on infrastructure will generally report large losses in their
earnings statements. EBITDA helps determine whether that new
multimillion dollar fiberoptic network, for instance, is making money
each month, or losing even more. By stripping away interest, taxes and
capital expenses, it allows investors to analyze whether the baseline
business is profitable on a regular basis.
Investors should be mindful of cash flow. EBITDA gives an indication of
profitability, whereas cash flow measures how much money is actually
flowing through the telecom operator at any given period of time. Is the
company making enough to repay its loans and cover working capital? A
telecom company can be recording rising profits year-by-year while its
cash flow is ebbing away. Cash flow is the sum of new borrowings plus
money from any share issues, plus trading profit, plus any depreciation.
Keep an eye on the balance sheet and borrowing. Telecom operators
frequently have to ring up substantial debt to finance capital
expenditure. Net debt/EBITDA provides a useful comparative measure.
Again, the lower the ratio, the more comfortably the operator can
handle its debt obligations.

BIBLIOGRAPHY
http://business.mapsofindia.com/india-market/telecom.html
http://mybroadband.co.za/vb/archive/index.php/t-11610.html
http://www.currentanalysis.com/markets/telecomindustry/?
gclid=COmW0tyQqZcCFRIYegodnxZFig
http://www.compaedia.com/Industry-Report.aspx?
Industry=Telecommunication&location=Global+150&gclid=CO7c9
eiSqZcCFQwcegodCxt3iw
http://books.google.co.in/books?
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m+industry&source=web&ots=0nBzUkiS6N&sig=X3-
tvPNFljcgrzxaegto-
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REFERENCES
Managerial economics by Geetika, Gosh andRoy Chowhdry.