The Wireless Challenge
Business Week has a special report (Asian edition cover story) on the shift to wireless, and the impact on fixed-line carriers:
There’s no doubt the old order is crumbling. Although the total number of fixed phone lines in the world is still creeping up, wireless is growing six times as fast. This year, figures London telecom researcher Ovum Ltd., the number of mobile subscribers will exceed fixed lines for the first time. Wireless carriers now take home nearly half of global voice revenues, up from 9% a decade ago. In Finland, an estimated 25% of households are now mobile-only. Even worse for fixed-line operators, the amount of money they take in from each line has fallen by one-third since 1997. As a result, global revenues for fixed-line voice services are expected to fall by 2.2% this year, according to the Geneva-based International Telecommunications Union.
Turmoil, however, doesn’t mean termination. Fixed-line phone companies will still pull in $455 billion in revenues this year from voice services. And the telcos remain veritable cash factories: The world’s leading carriers will spin out $131 billion in free cash flow this year, estimates brokerage Merrill Lynch & Co., up 10% from 2002, thanks to aggressive cost-cutting. Next year, Merrill says, cash flow will edge up a hair, to $132 billion. Growth may no longer be what it was in the 1990s, but the 45 stocks in the Standard & Poor’s Global Telecommunications Services index are up 9% for the year.
The fixed-line carriers have an ace in the hole: their wires. “The biggest factor in their favor, bar none, is that they still own the local network,” says analyst James Eibisch of market researcher IDC. How is that an asset if the world is going wireless? Because the wired network will always have the advantage of higher bandwidth, or communication speed, and in the emerging world of digital media, faster is always better. That’s why outfits like Sonera are betting on DSL. “Broadband has become the driver for fixed operators,” says Bruno Duarte, a partner at consultant Arthur D. Little’s telecom practice in Paris.