External Analysis of the Telecommunication Industry

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External Analysis of the telecommunication industry

Economic
• Market analysis by Insight Research predicts that telecommunications-industry revenue will reach $1.2 trillion by the end of next year, and grow by a compounded rate of 5.9 percent to $1.6 trillion by 2010.

• Telecommunication remains an important part of the world economy and the telecommunication industry's revenue has been placed at just under 3% of the gross world product.

• Mobile phones have had a significant impact on telephone networks. Mobile phone subscriptions now outnumber fixed-line subscriptions in many markets. Sales of mobile phones in 2005 totaled 816.6 million with that figure being almost equally shared amongst the markets of Asia/Pacific (204 m), Western Europe (164 m), CEMEA (Central Europe, the Middle East and Africa) (153.5 m), North America (148 m) and Latin America (102 m)

• In terms of new subscriptions over the five years from 1999, Africa has outpaced other markets with 58.2% growth

• 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 interconnect more often 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.

• During the late 1990s, the telecommunications industry experienced very rapid growth and massive investment in transmission capacity. Eventually this caused supply to significantly exceed demand, resulting in much lower prices for transmission capacity. The excess capacity and additional competition led to either declining revenues or slowing revenue growth, which has led to consolidation within the industry, as many companies merged or left the industry.

Socio-Cultural
• Telecommunication is an important part of many modern societies. Good telecommunication infrastructure is widely acknowledged as important for economic success in the modern world on micro- and macroeconomic scale. • On the microeconomic scale, companies have used telecommunication to help build global empires, this is self-evident in the business of online retailer Amazon.com but even the conventional retailer Wal-Mart has benefited from superior telecommunication infrastructure compared to its competitors. In modern Western society, home owners often use their telephone to organize many home services ranging from pizza deliveries to electricians. Even relatively poor communities have been noted to use telecommunication to their advantage. In Bangladesh's Narshingdi district, isolated villagers use cell phones to speak directly to wholesalers and arrange a better price for their goods. In Cote d'Ivoire coffee growers share mobile phones to follow hourly variations in coffee prices and sell at the best price. • On the macroeconomic scale, in 2001, Lars-Hendrik Röller and Leonard Waverman suggested a causal link between good telecommunication infrastructure and economic growth. Few dispute the existence of a correlation although some argue it is wrong to view the relationship as causal. • However from any perspective the economic benefits of good telecommunication infrastructure are undeniable and, for this reason, there is increasing worry about the digital divide. A 2003 survey by the International Telecommunication Union (ITU) revealed that roughly one-third of countries have less than 1 mobile subscription for every 20 people and one-third of...
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