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Communications Trends Driving Global Growth and Prosperity
Phillip Redman
Tuesday, July 4, 2006
Global telecommunications is rapidly changing with new wireless technologies, such as WiMAX (a family of protocols) and high-speed wireless data, emerging. Old wired data technologies, such as frame relay, are vanishing. Mergers, acquisitions and joint ventures provide benefits and challenges for these enterprise services. Communications services are changing rapidly with the growth in wireless minutes overtaking wireline (and global wireless service revenue surpassing wired in 2007), the future of fixed/mobile convergence, the impact of voice over Internet Protocol (VoIP) on enterprise and carrier services, and the continued mergers, acquisitions and consolidations. In many companies, the same groups are evaluating fixed and mobile services, especially as large service providers now will sell both wired and wireless. Big companies are only getting bigger. These trends will likely continue for the next 24 months driven by enterprise adoption and the increase in IT spending, as see in Exhibit 1.

Exhibit 1 Anticipated average increase in IT budgets
Some key trends in telecommunications are occurring:
l Speeding up of the technology cycle—From technology inception to maturity, more standards are delivering more products at the fastest pace ever. The development cycle between cellular phone models are shrinking, and what once took 24 months to produce from concept to finished product is down to under a year. The mobile WiMAX standard was ratified in December 2005, chipsets are already available and certified products will be on the market in 2007

2. Consumerization of the Enterprise—More products are being adopted by consumer or prosumer markets first than finding their way into the business. This is in reverse to past trends where technologies like cellular phone, networking or personal computers were on desktops in companies first before homes. Today products like instant messaging and Wi-Fi are finding their way into offices after the homes. Next on the list are digital vide recorders and music players. And like in the consumer market, form is important in business. Fashion outplays function and users expect more.

3. Telecom Convergence—This is basically a drive to move away from point solutions, wired and wireless, voice and data—and to consider products and services that are made up of both. How long have business users had two separate numbers and voice mail boxes? This is a move towards simplicity that at the same time will lower costs, drive productivity and be more secure.

What else is coming?
Prediction: By 2008, more than 25 percent of all established Tier 2 and Tier 3 global mobile operators would disappear.
Gartner predicts that in-country consolidation and international expansion will lead to the disappearance of 20-25 percent of established Tier 2 and Tier 3 carriers in the coming years. In the United States, T-Mobile recently announced a plan to acquire Tier 2 and Tier 3 cellular providers.

In-country consolidation of mobile operators, leading to market concentration, will potentially push prices up. Duopoly markets, such as Norway, have stifled price competition and inhibited innovation. Any savings from the consolidation of operations will likely not be passed on to customers. International expansion of mobile operators could provide enhanced mobile services, such as virtual private network, mobile extension and reduced roaming charges for customers.

Prediction: By the end of 2006, more than 50 percent of U.S. carriers will have announced a date by which they will no longer support frame relay.

Frame relay has been a workhorse networking technology for many years but is coming to the end of its life. The migration to IP-based technology continues to be strong. Providers do not want to support frame relay for a small number of users — primarily because of cost — and will announce in 2006 that they will no longer support it. The majority of carriers will likely drop support for frame relay in either 2007 or 2008.

These announcements will accelerate the migration to IP networks. Gartner forecasts that the price of frame relay will increase because carriers want to entice their customers to move to IP. Some enterprises that are running frame relay will have no need for IP functionality, and IP may still prove to be more expensive for them than frame relay. Therefore, they may not want to migrate the technology, but they may have no choice. The alternative is that these enterprises will have to migrate to other likely second-tier providers who will continue to support frame relay.

IP networks are the dominant wide-area network technology, and all but a small minority of enterprises will be running the majority of their networks on IP.

The vast majority of enterprises will also be running converged voice and data networks within the next two to five years.

Prediction: By 2007, at least one major service provider will bundle wireless and wired services together for the enterprise.
Service provider consolidation with a focus on wired and wireless enterprise products
The convergence of wired and wireless applications.

The adoption of key-enabling technologies to support and be able to bill for converged services. Unlike some offerings in which the service is built only around the cellular phone, this new service would include access on multiple devices, desk phone, cellular and home office phone — all under one bill.
Wireless and wired services have generally been sold separately into the enterprise, leading toward inefficient adoption and higher costs for services and management. Wireless voice and data services can be integrated into the service offerings so that they can be sold and supported in the enterprise as one, moving from total metered services into integrated bundles that represent both fixed and mobile telephony. This will especially be true for in-building where increased wireless coverage by Wi-Fi or cellular will lead to flat-rate or low-priced minutes in the next few years.

So what does this mean for the future? Digital is driving convergence, changing business patterns and opening up opportunities. This is a slow progression, though—no matter how fast it seems to be moving. Transitions like this take time, and this one can be traced back to the 1980s personal computer and client/server revolutions. The Internet has accelerated the digital trend and brought it to the masses.

Second, this is global. Companies are extending capabilities and selling everywhere. Large multinationals in electronics, telecommunications, power, and many other industries have ties around the world, in every region. Look at World Cup advertising, for example. There aren’t too many sponsor names that everyone isn’t familiar with no matter where they come from or where they travel. This presents scale challenges, but in the end, if handled responsible will raise universal living standards.

Phillip Redman Research VP Communications, Gartner.
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