Operator Environment
Background
The world’s top 100 incumbent operators have seen their market share in decline with total revenues down from 2001 to 2002, and new entrant operators dominate revenue growth rankings. Many factors contribute to this situation but most evident is the strong competition brought about by market liberalisation of previously monopolistic environments.
While global data revenues are growing much faster it is voice that represents the largest proportion with up to 80% of overall revenues. The rate of growth of global voice revenues is beginning to level and will very soon be in decline due to the increasing commoditisation of voice as a standalone service.
Incumbents
Increasing competition and regulation has affected incumbent revenues as operators lower their rates for voice telephony and battle to retain their domestic market share.
Traditionally they have been able to carry significant debt due for repayment over decades. However a reduction in their cash flows needed to amortise large investments, the threat of technology innovation undermining asset value, and a downturn in market conditions as seen in the last three years, has introduced huge pressures from the financial markets.
From a network perspective the drop in return on investment (ROI) on traditional time division multiplex (TDM) voice equipment, a difficulty in controlling operating costs, and a lack of new innovative services have effectively brought the potential revenue growth of traditional voice networks to an end. With a more protracted rate of evolution for core infrastructures incumbents must be cautious with capacity replacement and expansion. More importantly incumbents are concerned with where and how to find new sources of revenue.
New Entrants
While incumbents account for the majority of global revenues, price and service differentiation are encouraging their customers to drift to new entrant operators. These operators come from many backgrounds including Internet-based providers, bandwidth providers, cellular, and cable companies all mostly expanding on existing business models.
Subject to the terms of their operating licence many target only high revenue potential areas such as large cities or inter-border service but establishing a large geographical customer reach can be problematic. They are taking advantage of their investment in data infrastructure, in the prolification of low cost core bandwidth and in emerging broadband access models by introducing new services, including voice, on common converged platform without the threat of cannibalising other revenues.
Many have gained quick market penetration and established themselves in aggressive markets while others have been the subject of take-overs and bankruptcy, particularly bandwidth operators who suffered from a forecast demand that did not materialise.
The Future Operator
To varying degrees all operators are evaluating or implementing infrastructures based on the convergence model. For example incumbents are undertaking PSTN Class 4 and 5 replacement strategies, ‘greenfield’ operators are launching voice services on high capacity, quality of service enabled data networks, and 3G operators have launched mobility enabled multimedia services.
All are reliant on robust equipment, stable standards and applications that deliver differentiating, cost efficient, value add services. Nevertheless convergence is an integral and vital aspect of all operators’ future business strategies.
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