In-depth review of the telecommunications sector

OECD Observer
Page 92 

Who would have thought, even a few short years ago, that mobile phone operators would be making staggering profits? Yet the UK company, Vodafone, which announced an almost 50% increase in its annual profits in a recent interview with the BBC, has done just that. According to a Vodafone executive, the company expects to increase its customer-base from its current 15 million to 30 million by the end of 2002. Fact or fantasy? One thing is certain, the revenues that the telecommunications sector is generating today are perfectly real: over $1 000 billion, according to the latest edition of the OECD's Communications Outlook. This sort of performance warrants an in-depth look at this most lucrative of industries. In addition to a wide range of performance indicators for the various communications networks and companies, the above report gives data on service charges, investment and employment. It reviews the major changes and future trends in the industry in detail. It tells us, for instance, that the share of mobile phones accounts for 20% of all telecommunications expenditure. With the expansion of networks and the liberalisation of the market in the majority of OECD countries, mobile communications have cornered the mass market. In early 1992 there were fewer than 15 million mobile cellphone users. By 1997 there were over 173 million: a real boon for telecommunications operators, which are relentless in their efforts to find attractive new charging formulae. Competition is also beginning to transform the fixed telecommunications market, although change is slower and often confined in some countries to just one or two market sectors, such as long-distance or international services.

Besides mobile communications, the Internet is indisputably the main potential source of revenue to appear on the scene over the period 1992-1997. The structure of this industry has been rapidly transformed: for example, Internet access was initially offered by service providers, which have now practically all been taken over by major telecoms operators offering access as one of a range of services. A case in point is AT&T Worldnet, launched in February 1996, which signed up its millionth Internet customer in the fourth quarter of 1997. Although lower than mobile phone and Internet revenues, earnings from broadcasting in Member countries are still substantial: $145.3 billion in 1997, of which 84.4% is from television. Five countries -- the United States, Japan, Germany, the United Kingdom and France -- still account for almost 80% of the total market, with the United States alone accounting for 40.2%. Of the 50 largest companies in the world, 49 belong to OECD countries. The main players are still terrestrial broadcasting companies, although cable television companies, like Viacom and TCI, and pay television companies like Canal Plus and BSkyB are also on the list. With the entry on the market and rapid development of cable and pay television companies, revenues from subscription charges for these services have generated a substantial flow of income that is vital for the television sector. These charges now account for 32.1% of the television market's revenues in the OECD area, or more than double what it receives in government funding and advertising revenues. The advent of digital transmission should speed up this trend. The upheaval that this new information technology has caused throughout the communications industry is far from over. It enables digital television to provide better picture and sound quality and to vastly increase the number of channels that can be transmitted on the same bandwidth. Among other services, digital television could provide improved data facility and a host of interactive services, ranging from electronic commerce to video-on-demand and high-speed access to the Internet. For telecommunications companies, the opportunities are vast. Could it be that all current forecasts are still on the conservative side?

• OECD Communications Outlook, 1999

©OECD Observer No 217/218, Summer 1999 

ISBN: 92-64-17013-8, US$71, FF400, pp.256

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