Wire-line And Wireless Telecom Is Changing; What It Will Look Like Going Forward

Ever since AT&T was broken up into seven baby bells and one long distance giant in 1984 the telecom industry has been changing

. Over the last 25 years we have seen several different industry shifts capture the headlines. Today the industry is in the middle of yet another transformation. Let's look at the forces that are re-shaping it and what the industry will look like going forward.

If you are a customer, an investor or an employee you have to know the direction of change and what is coming. Let's break the industry and the companies into segments and look at each separately because every company has parts that are growing and doing well, and other parts that are not.

Look at the telecom industry in separate buckets. There are actually more than these basic bundles, but these are the important main categories for now. Wireless, wire line, Internet and television.

The wireless part of the business is the fastest growing, however it is now starting to go through some major changes. Until now the carriers battled among each other to win new customers. Today there are fewer new customers, so growth going forward is in new areas.

One is winning existing customers from each other. We will see advertising and marketing battles discussing strengths and weaknesses. Currently Verizon is waging a battle against AT&T on the quality of 3G coverage.

Is it successful? I remember a similar campaign years ago and that was much more successful. Today people know the major carriers all offer excellent quality. They also know each has strengths and weaknesses. So whether a carrier is better or worse is different for each customer.

This kind of advertising does not hold value for customers any more, but that does not stop Verizon from running it or AT&T from responding to it. That's the ad game.

Another is wireless Internet and data. In the late 1990's the networks were transformed from analog, voice-only devices to wireless data powerhouses. People started doing email and sending text messages. They started taking pictures then sending them to each other. They started watching video clips, then live television and movies. They started using GPS and reading books on their devices. Regular cell phones are giving way to smart phones.

During the last few years, people are using their cell phones more than regular phones. We have seen wireless Apps become wildly popular. When Apple launched the iPhone a few short years ago there were only a few hundred Apps customers could use. Today there are around 150,000 apps. That's an incredible jump and it continues to grow.

Suddenly Google is also competing in the wireless space with their Android and Nexus One phones. These are not even wireless companies. This is only the beginning of this new area of the industry. Expect much more in coming years.

Going forward there are new opportunities starting to be chased down on the wireless sector.

The wireless industry is focused on bringing other industries into the wireless revolution. Sprint is working with Ford to bring the Internet to the dashboard and AT&T working with power companies to help them read meters without sending people out in cars. Industry after industry is an enormous opportunity for growth in coming years.

The wireless industry sees enormous opportunity, but the marketplace is getting tougher to crack with the soft economy. Many customers are looking to cut costs. Smart phones are still growing in part of the marketplace. In another part customers prefer fewer extra services and a lower bill.

Post-paid was always the growth engine and pre-paid was the service for the customer with bad credit. Pre-paid was more expensive, but at least it provided a phone to the customer. Today that is changing. Today many people are choosing pre-paid for many reasons. The economics of the plans have come close to post-paid making them more attractive. Customers who use their phone less can save money. Pre-paid devices are more basic, but that is what many customers want. Not everyone wants a powerful iPhone or Nexus One. Some just want a phone.

Companies want to drive customers to more expensive data plans, but increasingly customers are driving themselves to cheaper plans. Prepaid is going mainstream. It's not just for bad credit anymore. Now it is for the cost conscious customer. This segment should continue rapid growth.

Expect the pre-paid side of the business to start rolling out more juicy devices allowing customers to surf the web and send email and text messages easily. As they get better phones carriers will advertise and market and entice pre-paid customers to spend more.

The carriers sniff out new opportunities and the customers sniff out the best deals. Until the economy improves this trend will continue. The new-ness of all these wireless devices is still cool to many customers, but is considered a toy they can do without if they have to.

The wireless industry is starting to compete with the wire line world. Remember as wireless high speed Internet connectivity increases, and as wireless carriers offer devices that allow customers to connect their various computers and laptops, many think to themselves why also have a separate wire line telephone and Internet DSL or cable internet service? Two services cost more so expect to see more changes.

On the wire line side telephone companies are successfully rolling out television services, but not as quickly as we expected. The quality of the service seem excellent according to companies that rate these things. AT&T is continuing to roll out their Uverse servies, but Verizon said they will throttle-back on rolling FiOS television service out to more markets.

Is this a temporary measure during the bad economy or is this Verizon saying they are not happy with the results and are pulling out?

They have invested enormous sums to bring this to reality so I cannot imagine they will not be moving ahead, but we have to watch and wonder. Wonder if it will come back for Verizon, and wonder whether this is only Verizon or whether we may see something similar at AT&T in coming months.

Television from the telephone company has been an excellent source of competition in a few markets for the cable television companies like Comcast, Time Warner and Cox. However we have not seen costs reduced yet which was expected. What does this mean going forward?

Regular phone service at phone companies is on the downside. Ten years ago if we wanted to make a phone call we used a phone company period. Today we have lots of choices. Cable companies offer an Internet phone service called VoIP. Plus all the wireless providers are still growing. In addition there are services like Skype and Vonage which are stand-alone companies offering telephone over internet. There are many choices.

This means the future of the local phone line continues to shrink. It will still be around for a long time, but is not growing. When will the shrinking stop? It will not go down to zero. It will stop somewhere. Where and when is the question? We won't know the answer for a while and telephone company investors bite their fingernails.

The telecom industry is in transition. It actually has never stopped since the mid 1980's. Today is only a snap shot in time. Knowing the direction is key whether you invest in, work for or are a customer of any of these companies. Keep your eyes open. The marketplace will look completely different a few years from now. What companies and technologies will lead is the only question.

by: Jeff Kagan

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