New Opportunities and New Competitors

Most of the world’s developed telecom markets have undergone major changes in telecom policy in the last 20 years. Japan, the UK and the US, for example, began implementing new guidelines for competing carriers in the 1980s. Other markets have had legislation, white papers, or multi-national guidelines such as the EU policies, starting to affect them in the 1990s. From the perspective of incumbent LECs (ILECs), the new policies may appear a double-edged sword: the carriers have to contend with new competitors, in many cases leasing their facilities to them at rates determined or approved by the regulators; but the policies also have given the incumbent carriers opportunities to enter new voice, data, and video markets.


Liberalisation trend Spreads

Telecom regulatory policies therefore can have a major effect on decisions as to where and how much to spend on fibre upgrades. The wave of regulation or liberalisation is also underway in developing markets, but in many countries of Africa, Asia, and Latin America, the policy changes have been or are being phased in more recently, and there are fewer competing operators. Many of these markets also have lower teledensity, lower telecom revenues, fewer Internet users, and there is more limited opportunity for fibre-based network upgrades.


Incumbent Telcos Can’t Stand Still

As noted previously, the number of fixed line subscribers has decreased in many advanced telecom markets because some customers are opting to use only mobile cellular and because some have defected from the phone company to another service provider. In the US, for example, the major CATV operators have begun offering voice service. The chart on page 5 shows the number of residential access lines for a group of about 50 of the largest US LECs, including the former Bell companies, the RBOCs, plus the largest independents. The figure also shows the residential customers that use a CATV operator for telephone service. By the end of 2006, the CATV operators had signed up 9.5 million telephony subscribers, almost all of which had defected from a phone company to obtain a bundle of services.


Lacklustre Revenues from Voice Service

The decreases in the number of wireline subscribers have affected telco service revenues. The chart below shows revenues from local telephone service for the same group of ILECs – the RBOCs plus the major independents. The ILEC local service revenues have decreased from 2000 to 2005 with the same negative CAGR as the number of lines, -5%. The other set of columns represents the CATV industry’s revenues from video programming and associated advertising. These revenues have increased, with a positive CAGR of 6%, from 2000 to 2005.


CATV Revenues Grow

The CATV revenues include fees for basic monthly programs, premium service, which includes pay-per-view and movie channels, and advertising. Revenues from CATV telephony, Internet, and other services are not included in this chart. It is important to note that the increases in CATV revenues shown in this chart were achieved without adding subscribers. The number of US households subscribing to CATV services has remained at about 66 million from 2000 to 2005. This figure therefore illustrates both a challenge and a potential opportunity for the incumbents: can the ILECs upgrade their networks, enter new service markets such as entertainment video, and sign up enough subscribers to achieve an attractive payback?