| BUSINESSWEEK ONLINE : JANUARY 10, 2000 ISSUE | ||||||||
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| INDUSTRY OUTLOOK 2000 -- INFORMATION
Telecommunications It was Thanksgiving morning, and an important telecommunications battle was unfolding over coffee at the Port Authority Bus Terminal in New York City. Anita Guttman, a retired schoolteacher from Brooklyn, was perched on a stool at Zaro's Bread Basket, deep in conversation with her aunt Mildred Harmatz. The pair, en route to New Jersey for the holiday, were puzzled by a curious offer Guttman had received from AT&T. Her long-distance carrier wanted to sell her its new local telephone service. ''I really don't understand it, but I want to hear what they have to say,'' she said. It won't be easy, however, to lure her away from her lifelong local phone carrier, Bell Atlantic Corp. ''I wouldn't switch unless I got a really low rate, and it was something I could understand,'' she added. Hello, competition. In 2000, for the first time, local and long-distance telecom companies will begin to battle in earnest for the business of consumers like Guttman. New York will be ground zero. In late December, the Federal Communications Commission granted Bell Atlantic (BEL) permission to enter the long-distance market in New York State. The prospect of the Bell Atlantic threat prompted AT&T (T), MCI WorldCom (WCOM), and Sprint (FON) to pile into the New York market with their own local phone services at the end of last year. The clash of titans has resulted in some customers seeing decreases in their local phone costs of up to 20%. And over the next year, the benefits of competition will begin to spread to consumers across the country. For example, Texas and Georgia may let Baby Bells into long distance in 2000. BIG DEALS. To garner the financial might to deliver everything from local and long-distance services to wireless and Internet access, the industry is going through a complete overhaul. The value of mergers and acquisitions in the field through late December, 1999, totaled a stunning $561 billion, up 48% from the same period the year before, according to Securities Data Co. That includes the two largest deals ever--MCI WorldCom's $114 billion offer for Sprint and Vodafone AirTouch's (VOD) $148 billion offer for German wireless carrier Mannesmann (MNNSY). And telecom players are just getting warmed up. Merrill Lynch & Co. analyst Adam Quinton says a $250 billion deal could occur in the industry during the first half of 2000. As outlandish as that may sound, it's a real possibility. AT&T and British Telecommunications PLC (BTY), which already have a joint venture for their international operations, could combine forces. BellSouth (BLS), Qwest Communications International (QWST), and Dutch carrier Royal KPN (KPN) could also team up, says analyst Tod A. Jacobs of Sanford C. Bernstein & Co. The phone giants are bulking up to capitalize on several rich opportunities. Demand in 2000 will be strong for souped-up digital wireless services, high-speed Net access, and other new telecom offerings. The U.S. telecom services sector, including local, long distance, wireless, and paid video, will grow by 9%, to $250 billion, according to analyst Richard G. Klugman of Donaldson, Lufkin & Jenrette Inc. Data services will soar 30%, in part because of the surging demand for high-speed Net access. While the traditional voice communications business trundles along at a 5% growth rate, wireless phone service will jump by 20%. The boundaries between the wired and wireless sectors will begin to blur this year. As technology improves and wireless prices plummet, customers increasingly will view cellular service as a viable substitute for traditional phone service. ''I think we will start to see people shutting off their home phones because they have enough minutes on their wireless plans. They won't need both,'' Klugman says. Yankee Group Research Inc. estimates that 2% of wireless phone users no longer have wireline phones at home, and that this number will reach 6% in two years. And mobile phones won't just be for chatting. Increasingly, they'll be used to scoop information off the Net and transmit short text messages and other data. Sprint introduced wireless data services last year and will market them aggressively in 2000. AT&T and Nextel Communications Inc. (NXTL) plan to push similar services in the first quarter. If you want a glimpse of the future in the U.S., look to Japan. NTT DoCoMo, Japan's largest wireless carrier, introduced its ''i-mode'' wireless data service in February, 1999. During the year, an astonishing 1.7 million customers signed up. That is nearly 6.6% of NTT's subscriber base and 3.7% of Japan's total wireless subscriber base, notes Merrill Lynch analyst Linda R. Mutschler. ''We think that's staggering,'' she wrote in a November report. ''In our view, these numbers...could be a precursor of things to come in other regions.'' FREE PHONE. As data traffic becomes more important throughout the telecom industry, it will have a fundamental impact on how services are sold to consumers and businesses. Consider this: In  early 2000, the volume of data traffic in the U.S. will surpass that of traditional voice traffic. And by 2001, it will be 2 1/2 times the volume of voice. That foreshadows profound changes. As the importance of Net and data traffic rises and the price of voice calls plunges, many experts think customers will get phone service for free and pay only for speedy Net services. ''We think long distance will cease to exist as a separate industry by 2003 or 2004,'' Lehman Brothers Inc. analyst Blake Bath says.Services related to the data surge will be an important source of new revenue for telecommunications companies. They are entering such fields as consulting, Web hosting, and media. As the price of basic transport over the network falls, revenue from these new fields must offset the loss. And the outlook is promising. The Web hosting industry, which Forrester Research Inc. estimated at less than $2 billion in 1999, will hit $3 billion in 2000 and a cool $14 billion by 2003. Telecom upstart Global Crossing Ltd. (GBLX) announced in December that it was spinning off its Web hosting business as a separate entity to take advantage of investor enthusiasm for these companies. As carriers are building new networks and retooling old ones to prepare for the onslaught of competition, telecom equipment makers are having a heyday. The $301 billion worldwide communications equipment market is growing 14% a year, according to Merrill Lynch. The $8.3 billion broadband switching market will increase a scorching 40% annually from 1999 to 2003, Merrill Lynch adds, while the $41.6 billion market for old-fashioned voice switches will grow by only 5%. That is likely to bring telecom-equipment makers into yet another wave of data-networking acquisitions. Nortel Networks Corp. (NT), for example, is paying $3.3 billion for Qtera, a hot data-networking company with virtually no revenues. The most important change for people like Anita Guttman over the next year is that they finally will begin to see the benefits of competition. After all the consolidation and regulatory hand-wringing over letting local and long-distance companies go after one another, prices for all sorts of telecom services will begin to come down--in some cases dramatically. And there's likely to be a flourishing of new services as telecom players begin to compete for consumers' business. While Guttman isn't anxious to leave Bell Atlantic, she is willing to listen to AT&T and others. Just make her an offer. By Steve Rosenbush in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Telecommunications The World Wireless Web  POSITIVES At least one major carrier will offer long distance at 3¢ a minute. Local and long-distance services will invade one another's turf, expanding choices. Growth in Net service will offset profits lost in long-distance price wars NEGATIVES Wage increases won't keep up with industry sales growth. Many consumers will be confused and frustrated by the proliferation of service options. Falling margins in long-distance markets will hurt smaller carriers. INTERACT E-Mail to Business Week Online | |||
