Telecom “An industry like no other”

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Author and Contributor

Pierre Ruelland

Finding an industry in which you want to work is not an easy task. The diversity of them in our modern world is quite impressive and It is often a difficult choice for the young graduates that have to decide in what sectors they wants to work. The choice has to be carefully made. You want to be certain your personality will match with the requirements of your industry. For example, the Finance sector, requires a high level of dedication from its employees with a strong resistance to stressful situation whereas the Retail industry will be looking for adaptable people with empathic skills. Of course nothing is better than testing it and as we studied it in Entrepreneurship, experimenting an opportunity or a hypothesis is key to have a sense of certainty. Today, I would like to talk to you about my Industry, the one I discovered one year ago and aim to continue exploring after graduation. Can you guess which one?

 

Here are some clues:

  • What industry as a whole will be growing at a CAGR of 5.3% and plan to reach 2.7 Trillions in global revenue by 2017.
  • What industry has been leveraging the new technological trends we have seen emerging for the past 20 years?
  • What industry have been connecting people around the globe?

I am talking about the Telecommunication Industry. It is a ambiguous world in which the size does and does not matter. Why so? At a technological level, we saw the emergence of an ecosystem of start-ups developing solutions that will have a worldwide impact (“Whatsapp” app being only the tip of the iceberg). These numerous innovations find their roots into an ecosystem of entrepreneurs ace

ssing an unrestricted global network of telecommunication. But this network would have never been built without the “Big”, the giants of the industry. AT&T, Orange, Verizon, Deutsch Telecom, Google, Facebook and many others have made consequent investments to connect people wherever they are on the planet.

This market itself is a paradox of the Porter’s five forces:

The investments required to build your network are extremely heavy. Think of the costs to transition an underground network from copper to fiber cables. All the connections made between the underground cables that were buried in the previous decades have to be reopened, and replaced with high speed technology cables also called fiber cables. Think of all the Spectrum towers necessary to bring you 3G, 4G and soon 5G covering big areas of lands. To give you an idea, in 2012, the biggest telecom player in US (AT&T) announced in 2012 a $14Billion investment plan into the wireline and wireless market over a single 3-years period. Indeed, the carrier needed to transition most of its network toward 4G networks and high-speed cables. These costs represent a substantial barrier for new entrants creating an oligopolistic situation in numerous markets.

Aware of the situation, the authorities of many countries took actions to open the market. In 2012, The French government “blew up” the French telecommunication market by introducing a new competitor into the game dominated by Orange, Bouygues and SFR. The fourth player, Free, had no telecommunication equipment as it was only specialized on the Internet segment of the industry. Through an agreement between Orange and Free, the last was able to use Orange’s equipments to serve its newly acquired customers in exchange of a €1 billion annual fee. The main consequences of Free’s entry on the market was the dramatic decrease of margins made by the traditional carrier as free was positioning himself as a low cost provider and a market disrupter. In the US, the market was dominated by others giants and in 1996, the government passed the Telecommunication Act, a law with a goal of opening the telecom market to any communication businesses. Through the deregulation of the market, the government was hoping to promote competition and lower prices. By doing so, they just popped up the market barrier, creating a gap in which many small and medium companies entered, contributing to the deeper penetration of new technologies such as VOIP, IPs, cloud etc. The telecom market relies as much on small innovative companies than he does on multinationals firms like collaboration between the small and big animals.

But the telecom market is not only characterized by its structure but also by its constant change. The technological pace of innovation being so fast, the market requires constant adaptation to the circle of innovations. The struggle is real as the investments made are important and need to be planned years-ahead. A perfect example of carrier adaptation can be found in the analysis of the high speed wireless networks market. With the development of the 3G and then the 4G, smartphone users have found a new way of consuming, using internet services anywhere and at any time. The networks developed in the late 90’s- early 00’s were designed to support relatively low amount of data transfer; mostly text, pictures and call. When the first IPhone hit the market with its large ecosystem of applications, consumers were suddenly able to do things they would have never imagine possible on a phone: watching news and movies online, GPS tracking, HD video or picture transfer… Imagine the amount of data transiting through your phone when watching a HD movie on Netflix. Here are some KEY data that highlight the future of the traffic on telecommunication networks

According to a report published by Cisco, In 2013:

  • A fourth-generation (4G) connection generated 14.5 times more traffic on average than a non-4G connection.
  • Although 4G connections represent only 2.9% of mobile connections today, they already account for 30% of mobile data traffic.
  • Over two-thirds of the world’s mobile data traffic will be video by 2018.
  • Mobile video will increase 14-fold between 2013 and 2018, accounting for 69 percent of total mobile data traffic by the end of the forecast period.

Following the penetration of smartphones in developed markets, the telecommunication infrastructures were increasingly solicited as people were consuming data no more in terms of Megabytes but Gigabytes. A lot of these networks were and remain under significant stress as more content is transitioning in the air and through underground the cables. If the technological solution to increase network capacity for the wireline (broadband) segment is already underway (replacement of copper by fiber), the players are facing a technological dilemma to solve the same problem for the wireless segment. Indeed, your 3G/4G network is based on spectrum of telecommunication divided into segmented electromagnetic bandwidths .Some of these bandwidths are considered “gold” or high speed lanes. It means they have the fastest transfer speed in the air. They were usually used by the military sector and progressively sold to the businesses as the development of satellite communications arise. Imagine a highway with fast lanes on the right and slower lanes on the left. Carriers are now purchasing the fast lanes. However the problematic is that these bandwidths are limited in capacity and in numbers. With the growing use of data and the limited access to alternative spectrums, the companies are going to face a gap if nothing is done.

Conscious of the challenge, many companies are developing new solutions. Cisco stated in 2012, that by the year of 2018, more than 50% of mobile phone traffic is going to be offloaded to the fixed network of WIFI Hotspots. This is why you see more and more internet providers offering public hotspots when subscribing to theirs service. The multiplications of the Hotspot points in the big cities aim to absorb the growth of the mobile data traffic. For example, If you are a “Free” customer, your modem will be configured in a way that you have your private network as well as a public hotspot for any close enough to you to detect it. The interest is that if your outside and using “Whatspp”, “Viber” or “Skype”, you can use an Internet hotspot instead of your 4G, preserving the air network from a possible traffic jam.

Rare are the industries that have evolved so much these past 20 years and this one appear to be in a process of constant change. It is not only innovative, but it also provides solutions used by the whole planet (or about to) and it gives to the analyst a tremendous understanding of how tomorrow’s society will communicate and what will be its habits of consumption.

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