The telecommunications industry is one of the largest, the most important and the most rapidly changing in the entire economy.

Last tear, total revenues were £45 billion constituting a contribution to GDP of almost 3%. Almost every home in the country has a fixed line and at least one mobile and some 60% have an Internet connection. The average household now spends just over £60 a month on fixed, mobile and Internet services, representing almost 3% of household expenditure.

It seems as if every day one hears of a new takeover or merger, a new product or service, a different acronym, or a regulatory announcement. There is never a dull moment in telecoms – but how to make sense of it all?

For all telecoms watchers – politicians, journalists and analysts – plus investors, network operators, service providers and consumers themselves, this is a time of utterly bewildering change. So we need to pull back, look at the big picture, and distinguish the most important trends for the next two or three years.

Here’s my top ten:

1. The incumbent BT is restructuring to provide equality of access to its network by its competitors.

Following a review lasting a year and a half, the regulator Ofcom has decided not to refer the possible break-up of BT to the Competition Commission. Instead Ofcom has accepted a comprehensive set of legally enforceable undertakings from BT centred on the provision of genuine equality of access to BT’s network by its competitors. This will be achieved through a new stand-alone division called openreach [for more information click here].

This agreement – the first of its kind in the world – is enormously important. It should provide the regulatory certainty that enables BT’s competitors to invest in new infrastructure and roll out new services. More network and service choice is good for customers and it will encourage BT itself, already an excellent provider, to up its game.

2. BT is beginning to face stronger competitors.

It has taken a couple of decades, but the UK cable business has now finally consolidated into one strong competitor to BT as ntl takes over Telewest. Other so-called alt-nets – such as Cable & Wireless, Energis, and Easynet – are getting their act together and providing real competition to BT, although more consolidation is needed here too and can be expected soon. Major drivers of competition have been the introduction of full carrier pre-selection (CPS) and the new regimes for wholesale line rental (WLR) and local loop unbundling (LLU).

Over 31% of UK lines now take call services from a provider other than BT. Competition is biting – but the measure of success is not particular market shares of the various players; rather it is genuine choice for the consumer. If BT holds a substantial market share through fair competition, then it will deserve it.

3. Broadband is booming but there is still a digital divide.

At present, 48% of UK homes are passed by broadband-enabled cable, while BT’s ADSL broadband service is now available to an impressive 99.6% of homes. Actual take-up has been rapid with around a third of all homes now taking broadband. However, most of the recent change in the Internet market has been narrowband users upgrading to broadband and the overall proportion of homes on some sort of Net connection remains stubbornly at around the 60% mark [for a further analysis click here].

By the end of 2005, all local and national government services will be available on-line. Yet those who most benefit from such services, the poorer and older members of the community, are the least likely to be on-line. This is a major public policy issue that demands the energetic attention of Parliament, Government and Ofcom.

4. New media is still in its infancy as far as the range and use of services are concerned.

While there is a lot of hype in the old media around new media services such as the spectacular growth of text messaging on mobiles, the reality is that many of these new markets are still small-scale with few users compared to what is possible and can be expected.

Just one indication of the growth potential can be found by looking at premium rate phone services which now generate over £1 billion in this country. As more people come on-line, as they spend more time on-line, and as they acquire faster speeds and more confidence and trust, e-commerce in all its forms will transform the marketplace [for more information click here].

5. All new communications networks are being based on the Internet Protocol (IP).

Although consumers do not need or want to know about the technologies underlying the networks they are using, public policy makers need to understand that distinct networks for voice and data and old circuit-switching networks for phone calls are disappearing to be replaced by networks that carry all forms of traffic and use the IP protocol deployed by the Internet itself.

BT calls its next generation network the 21st Century Network (21CN) and, in terms of scale and speed, it is a world leader in the roll-out of such a new network [for more information click here]. As well as substantially reducing operating costs and improving quality of service, BT’s 21CN will allow future products and services to be built much quicker and – since open standards are involved – by new as well as traditional players.

6. Third generation (3G) mobile networks are set to take off.

It is not just fixed networks which are changing, so are those of the five mobile licensees. It seems to be a long time since the Treasury took an astonishing £22.5 billion from the five winners of the 3G auction – and it is – but 3G is now poised for take-off with Christmas 2005 as a likely major stimulus to take-up.

3G is not just a new generation of mobile, but a step change with practical access to the Internet and to a range of new customer-friendly services ranging from location services to video clips to actual television. The world will literally be in your pocket or handbag.

7. A range of new wireless technologies will change the landscape.

Watch out particularly for Wi-Fi and WiMax. Wi-Fi (Wireless Fidelity) provides wireless connectivity for computers (or other devices) within around 150-300 feet of a base station. WiMax (World Inter-operability for Microwave Access) is a wireless metropolitan area network (MAN) technology with a bandwidth of around 75 mega bits a second across a distance of about 30 miles. Wi-Fi ‘hotspots’ are already commonplace at locations like cafes and airports and are set to become almost ubiquitous. Meanwhile Philadelphia is to become the first big “wireless city” next year with the city’s decision to engage Earthlink, America’s fourth- biggest Internet provider, to blanket the 135-square-mile city with Wi-Fi.

8. Content is still king.

Ultimately the carriage of bits (binary digits) is not a terribly profitable business, especially when we have Voice over Internet Protocol (VoIP) services like Skype and Vonage essentially driving down the cost of basic phone calls to something approaching zero. From the point of view of the consumer, it is not really access that matters, but what one can access.

The market has so far barely touched the possibilities of what services can be provided over broadband or 3G networks. If people will pay even for Crazy Frog ring tones, we can expect a plethora of content-rich services to be offered in the next couple of years.

9. Telecommunications and broadcasting are converging big time.

We are already seeing a blurring of telecommunications and broadcasting with services like video on demand (VoD) and podcasting, but the distinction is set to break down completely with such services as Internet television (IPTV).

This presents a major challenge to the regulators when the heavily regulated word of broadcasting collides with the basically unregulated world of the Internet. New forms of self- and co-regulation, such as those pioneered by the Internet Watch Foundation (IWF) [click here] and the Association for Television on Demand (ATVOD) [click here], will be necessary.

10. Regulation will seek a ‘lighter touch’ – but this will not necessarily benefit all consumers.

More competition, more choice, less regulation – this all sounds like good news. But, on its own, it may not necessarily deliver for the consumer. Last year’s rogue dialler scam – now effectively stopped by the premium rate regulator ICSTIS – and the current efforts of Ofcom to stop slamming – the switching of a phone customer to another network without their approval – are just two examples of how things can go wrong.

The Ofcom Consumer Panel [click here] has argued strongly that the regulator has so far spent much more time and resource on the supply-side of the equation (how to increase choice for the consumer by improving the terms of competition) than it has on the demand-side of the equation (how to ensure that consumers are empowered to exercise such choice in a meaningful manner).

This requires reducing the search and switching costs involved when a consumer wishes to explore the options for changing telecoms supplier. Crucially it also involves providing the consumer with accurate and accessible information that enables an easy and fair comparison to be made between the many options on offer.

The future’s bright – the future’s more choice, more speed, more services, more content.

ROGER DARLINGTON

Last modified 22 November 2005