Your Television Is Ringing: A Survey Of Telecoms Convergence'

In relation to The Economist survey on the telecoms industry entitled 'Your television is ringing: a survey of telecoms convergence', examine the macro environment in which traditional 'fixed-line' telecoms companies (such as BT or France Telecom) operate, and describe the main challenges they face. (50% of the marks)

In the heyday of the telecoms market prior to deregulation, voice data traffic was the core product of all the major players, France Telecom, Deutche Telecom, British Telecom, Energis, Cable and Wireless and so on. It was in the late 1990's that the macro environment started to change. There was a final upsurge in voice traffic which was due to the proliferation of internet access into homes and was carried over the analogue systems as voice traffic, rather than the now commonly used data transmission and this was charged per minute.

BT the government incumbent at the time had the monopoly on the market (Adapted from Grant, 2002), this was due to it controlling the government owned "last mile" of copper to every home in the country. All of this meant that BT had very little competition from potential entrants and had huge supplier power over any new competitors

OfTEL was formed in1984 to help control the monopoly situation and has previously been renamed to OfCOM in December 2003, this move in itself echoes the level that convergence has changed the industry as it shows that minutes (Traditional POTS) was no longer the core element of the industry and that other communication methods were now overtaking and the industry is moving to a commodity based model. The industry has moved to an oligopoly where the few remaining companies also have some control of the local loop previously controlled by BT

Below is a STEP (Fahey and Narayanan 1986, pp.28-34) analysis of the macro environment at the time of the changes.

There are drivers of change in each of the areas within the industry and at many levels. Governmental changes to OFCOM are pushing have driven the deregulation of the local loop making it accessible to anybody. BT has been broken into to arms, one being the historical incumbent and another the retail arm. This has forced BT to operate on the same ground as other fixed line Telco's.

Clear parallels can be drawn between the local loop situation and that of Royal mail, government decreed deregulation made the high value next day business open for competition and eroded their business. The lack of foresight of the impact of email has also had a dramatic impact on the postal services bread and butter. It was only in 2005 that Royal mail made its recovery through driving more business and improving the service levels.

With broadband becoming far more geographically available and with technological developments making it faster and cheaper, the shift from voice traffic to a commodity based solution have gained pace very quickly. Competition between countries to be connected to the internet has also increased, this has mainly been created by the European Union setting general targets for household internet connectivity.

"Broadband access at affordable rates should be as easily available as drinking water or electricity - in all areas of the European Union. This is the opinion of the Committee of the Regions" (EUKN.ORG/ITALY, 10/06/07)

With the EU driving competition between European countries and our government also setting targets around Britain being connected to the internet, the customer demand and political drivers of the shift from voice to VOIP services are greater than ever.

'If we want broadband to work for businesses and consumers it has to be available at the right price on the basis of a world class service,' (Tony Blair - Broadband Britain - Computing.co.uk 09/06/07)

The Prime Minister says the government will spend a total of Ј6bn on IT and communications over the next four years to improve public services. (Broadband Britain - Computing.co.uk 09/06/07)

These factors have driven a National demand for broadband. This was a key driver of the telecoms industry at a macro level, and with 6bn of government IT spend over four years, making only a small portion of the market there is a clear customer demand for broadband.

The stock market crash of 2001 was created by a generally over ambitious strategy in the industry to entering every market. This combined with consolidation of over valued companies and extremely long depreciation periods on the network equipment has left investors nervous and confidence in the telco industry is taking time to recover.

I have tried to create a view of strategic groups in the telecoms industry, and it has become apparent that most companies are still trying to be all things to all men and diluting focus. This approach in the market means that there are few strategic spaces to fill .

This diagram shows that not one company offers quadruple play services of video, voice, data and wireless. The NTL strategy is notable in that they offer the most services and are focused on lower to medium value customers. The higher value customers tend to be business users and in that market there is little if any demand for video/TV services,