A generation ago, telecommunications markets around the world could be characterized by a number of stylized facts. Most nations had a dominant telecommunications pro- vider: AT&T in the United States, British Telecom in Britain, Deutsche Telekom in Germany, NTT in Japan, Telebras in Brazil, and so on. That provider was often state owned and even when it wasn’t, its operations were tightly regulated by the state. Cross-border competition between telecommunications providers was all but nonexistent. Typically, regulations prohibited foreign firms from entering a country's telecommunications market and competing with the domestic carrier. Most of the traffic carried by telecommunications firms was voice traffic, almost all of it was carried over copper wires, and most telecommunications firms charged their customers a hefty premium to make long-distance and international calls.
A generation later, the landscape is radically different. Telecommunications
markets around the world have been deregulated. New competitors have emerged to take on the dominant providers. State-owned monopolies have been privatized, including British Telecom and Deutsche Telekom. Several dominant telecommunications firms, state owned or otherwise, have been broken up into smaller companies. For example, in 1998 Brazil's state-owned telecommunications monopoly, Telebras, was privatized and broken up into 12 smaller companies that are allowed to compete with each other. New wireless technologies have facilitated the emergence of competitors such as Orange and Vodafone in Britain, which now compete head to head with the former state monopoly, British Telecom. Thanks to the Internet, the volume of data traffic (e.g., web graphics) is growing much more rapidly than that of voice traffic. By 2005, the volume of data traffic may be triple that of voice. Much of this data traffic is being
transmitted over new all digital networks that utilize fiber optics, Internet protocols, digital switches, and photons to send data around the world at the speed of light.
Telecommunications firms are investing billions of dollars in digital networks to handle this traffic. To cap it all, under a 1997 agreement brokered by the World Trade Organization, 68 countries accounting for more than 90 percent of the world's telecommunications revenues have agreed to start opening their telecommunications markets to foreign competition and to abide by common rules for fair competition in telecommunications. Most of the world's biggest markets, including the United States, European Union, and Japan, were fully liberalized and open to foreign competition on January 1, 1998.
The consequences of these changes are becoming apparent. A global market for telecommunications services is rapidly emerging. Telecommunications companies are entering each other's markets. Prices are falling, both in the international market where prices have long been kept artificially high by a lack of competition and in the wireless market, which is rapidly becoming price competitive with traditional wire-line tele- communications services. Estimates from the World Trade Organization suggest that the price for international telephone calls should fall by 80 percent over three to five years as competition increases, saving consumers $1,000 billion.
As competition intensifies, national telecommunications companies are entering into marketing alliances and joint ventures with each other in an attempt to offer multinational companies a single global telecommunication provider for all their international voice and data needs. In July 1998, AT&T and British Telecom announced they would merge most of their international operations into a jointly
owned company that will have $10 billion in revenues. The venture will serve the global telecommunications needs of multinational corporations, enabling workers in Manhattan to communicate as easily with computer systems in New Delhi, say, as with colleagues in New Jersey. AT&T and British Telecom estimate that the market for providing international communications services to large and medium-sized business customers will expand from $36 billion in 1998 to $180 billion in 2007. Other companies that are working together on a global basis include MCI-WorldCom, the number two long-distance carrier in the United States, and Telefonica of Spain, which is also Latin America's biggest telecommunications carrier. The Sprint Corporation, the number three long-distance carrier in the United States, is partly owned by Deutsche Telekom and France Telecom. Together this trio is positioning itself to compete with the WorldCom/Telefonica and AT&T/BT ventures to gain the business of multinational customers in the brave new world of global telecommunications. A similar trend toward cross-border consolidation is occurring in the wireless arena. In a 1999 transaction, Britain's Vodafone acquired the large American wireless service provider Air Touch to build a trans-Atlantic wireless service colossus. In November 1999, Vodafone continued its expansion thrust with a $128 billion takeover offer for Mannesmann AG, Germany's largest wireless service company. Reflecting on these trends, many observers believe that in a few years the global telecommunications markets will be dominated by a handful of transnational corporations. These companies will compete around the world and offer customers a bundle of wireline, wireless, and Internet services at a much lower cost than those available today.
Source:Global Business Today, Second Edition Charles W. L. Hill
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