IDC: Telco Data Boom Underway

As a drop of good news in an economically depressing bucket, IDC released a study last week showing that the worldwide telecommunications service market is still strong and growing.

The report may come as a surprise to many, as numerous service providers struggle with mounting losses, debt, and even bankruptcy (see Qwest Keeps Cutting and Global Crossing Falls Overboard).

But the report may underscore some trends that are already known to be confounding some service providers: It's data services that are experiencing the healthy growth, while traditional long-distance voice services are dragging on profits.

In 2001, the telecom services segment saw its revenues pass the $1 trillion mark for the first time, experiencing a 10 percent hike throughout the year and ending up at $1.1 trillion by year-end, according to IDC.

And the growth doesn’t stop there. IDC predicts that by 2005, the global telecom market will have grown to $1.4 trillion.

The growth, according to IDC, is due to the expansion of access lines around the world, as well as the rapid increase in data networking revenue. To date, the market for voice services, fueled especially by wireless growth, represents 86 percent of the total revenue of the global telecom market. Other segments of the market are, however, catching up.

While the market research company expects voice telecom services to see a global compound annual growth rate (CAGR) of 5.3 percent for a forecast period of five years between 2000 and 2005, it predicts that the data service market will increase at a CAGR of 24.4 percent for the same period. During this time, IDC anticipates that voice will have grown from $856 billion to $1,109 billion, while data services will have increased from $116 billion to $347 billion.

“Worldwide data revenue will be driven by the growth of IP-based and wireless data services,” says co-author of the report Rena Bhattacharyya, who is a senior research analyst for IDC’s Worldwide Telecommunications Markets. “These two markets are expected to almost double in size from 2002 to 2005.”

According to the report, the wireless penetration will continue to increase, with especially strong growth rates in developing countries. While an increase in fixed-line penetration in regions of the world with less developed telephone lines is also expected, the wireless growth in these areas will be more important. “It’s often cheaper to install a wireless network than a landline,” says Bhattacharyya.

The report revealed that not only are new modes of telecommunications pushing aside the more traditional parts of the market, but that new geographical areas are also in the midst of taking over the market lead. Latin America is an area with a lot of growth potential, and as early as next year, IDC expects the Asia/Pacific market to have become the largest regional telecom market in the world.

“Not to say that growth isn’t strong in the U.S.,” Bhattacharyya says, “but naturally, growth is going to be slower in more mature markets.”

International long distance is the area of the telecom industry that is expected to be hit the hardest over the next couple of years. This, Bhattacharyya says, is mainly because long-distance prices keep coming down. “Even with more usage, it doesn’t make up for the decline in prices."

Selected evidence from recent telecom earnings bear this out. For example, Qwest Communications International Inc. (NYSE: Q) executives said last week that the company was experiencing strong growth in wireless, DSL, and enterprise Internet services (including dedicated and dial-up Internet access and virtual private network services). Revenue from these services grew 42 percent, 85 percent, and 30 percent, respectively, for the quarter. But despite such growth in data services, Qwest's overall growth rate and profit levels declined.

Another reason long distance is suffering is the growing array of options available to consumers --like wireless phones with no long distance charges. IDC predicts that IP telephony will have the greatest impact on the international long-distance market.

The problems in long distance are bound to cause an overall reduction in revenue in the voice service sector, especially in North America, Europe, and the developed countries of the Asia/Pacific region.

— Eugénie Larson, Reporter, Light Reading
willowoak 12/4/2012 | 10:59:31 PM
re: IDC: Telco Data Boom Underway The aftermaths of 9-11 may be driving this more than is at first obvious. Our corporation is suddenly taking Disaster Recovery seriously. They purchased a remote data site and then paid the local Baby Bell handsomely to run very big data pipes to the town where the center is. Our data needs would have consumed all available bandwidth, otherwise. Their efforts in E-commerce are also causing them to spend more on hardware than I would have predicted even six months ago. Like a recent Dilbert cartoon showed, if its for Ecommerce, management folds pretty fast.
veemee 12/4/2012 | 11:00:01 PM
re: IDC: Telco Data Boom Underway I have been reading reports of data traffic being 90% of all traffic in a few years time, though voice traffic still will be the major revenue generator.

What is necessary is more applications, as optigirl pointed out, to get more revenues out of customers who would only pay some fixed amount for each service and no more.
LightMan 12/4/2012 | 11:00:06 PM
re: IDC: Telco Data Boom Underway The way I see it IDC had two choices:

1) Less than last year

2) Slightly more than last year

Brilliant, huh. Weighing the pros/cons of each and the impact they would have on IDC most likely impairs their judgement somewhat. Who would buy thier lifeline (subscriptions) if they said revenue would decline. Would you or I use them as a reference for our startups, if they say *gasp* the market is declining?

So a 10% increase is what they derived. Is this impossible, maybe for the US, but they pulled the market penetration card for wireless and IP Services. Don't think the wireless growth will be to applicable in the U.S. as it is reaching 50% penetration, but in places outside of Northern Europe, US, and Japan their may be enough growth to provide a 10% aggregate increase.
As far as GPRS/3G, I don't know if I am willing to spend more than the $110/mo, I currently spend on the wireless. (A while back I used to use sprint's online service and I justed checked stock quotes at the airport. The treo or better the Nokia communicator in the US may sway me, but it is certainly an early adopter toy.)

As optigirl said, IP services either need to cut costs or drive revenue for the customer. I only see the coveted VPN as performing some of this, but it will most likely canabalize the providers' existing and possibly more expensive services. (remember the ILEC's reluctance to roll DSL to SMB).

So my take is:

- International Wireless ++
- Domestic GigE to SMB ++
- VPN = (as it applies to rev. growth for 2002)
- Carrier Transport --
- IP Telephony -- (doesn't drive revenue, saves $$ for providers. I already talk on the phone as much as I care, and moving to packet voice won't make me want to do it more)
- DOCSIS 1.1 + (tiered bandwidth - ATTBI will have in approx 1 mo. $20more)

So in my little world, I'll believe that a 10% increase is possible. As long as I am in this industry anyway.

optigirl 12/4/2012 | 11:00:12 PM
re: IDC: Telco Data Boom Underway Gea:

I still come back to a very central point: Just because the services are available does not mean that the SPs will generate additional monies from them. I still think that there are finite amounts of money that can be collected from consumers or businesses for communications related services. The only way that you will get said purchasers to fork over more money is if:

1. It helps cut costs beyond what they are spending

2. It enables people to increase revenues.

Short of these two happening, offer one or a million new services and I still don't see a huge revenue push. Demand (new customers and healthier economies) are what will drive this industry.
gea 12/4/2012 | 11:00:13 PM
re: IDC: Telco Data Boom Underway Yes...I suspect something like this is actually at the bottom of our current woes...

Optigirl wrote...
"What we need to consider are the companies out there who rack up huge debts getting out of the gate and then try to make their money by offering cheap prices for faster services and hoping to make it up on volume."

Kind of a pyramid scheme for telecom-based income. The problem here is not that there's no business, but that we speculated any kind of widely-available profits out the window in a lot of cases.

As for the services angle, this is still almost in its infancy, but I believe it must previal in the long run. Here I'm talking about primarily packet-based services, although this eventually could include optical services (enabled by the likes of GMPLS).

Easy examples of packetized services include metro VLANs, virtual/distributed routing, and security/firewall services. For me, on-line business models will continue to expand and differentiate and will eventually require packet-centric telecom services the likes of which we havn't yet seen.

These service providers will probably act like the zillions of tiny web-hosting/SANs (and to a lesser extent internet connection companies) riding over the facilities of the few packet-enabled carriers that learned how to operate with maximum eficiency and minimal cost. Some of the services will clearly be the telecom-equivilent of "midleware" (probably like virtual routers), which larger bandwidth-oriented carriers charge to the smaller service "carriers" operating over their facilities. Other services will be charged to the end customer (VLANs? SANs? Multimedia Teleconferencing? Next-gen Napsters?).

In the end, I think the telecom industry will eventually resemble the PC and software industries, except that we haven't yet determined what companies will be our Microsofts, our Intels, and our Dells (oh, and should I throw in a Mac or two?). The underlying strengths are there, but right now we're burning off a lot of chaff.
optigirl 12/4/2012 | 11:00:13 PM
re: IDC: Telco Data Boom Underway Gea:

I agree with the comments. Until we all decide that we will not make phone calls, use the web and over time decrease world population, traffic will continue to grow. Europe and Asia will continue to add users of services be they landline voice, wireless or some data.

What we need to consider are the companies out there who rack up huge debts getting out of the gate and then try to make their money by offering cheap prices for faster services and hoping to make it up on volume. The destroy any semblence of cost based pricing (which still has to be considered regardless of the supply and demand theory) for the rest of the market before they either fold or reorganize in bankruptcy.

The services issue is always an interesting one. Outside of transport, where is the $$$ being made? Enhanced voice services are where a lot of the LECs make good margins but data??? Still a problem in need of a savior. I also look at the ability to pay for telecom. Consumers have a limited amount to spend and businesses are not going to spend a bunch of money just because the services are there. So in the end game, the way the telecom business should continue to grow will be through adding additional customers and squeezing every nickel that you can out of your existing base without having to spend a dime to get it.
gea 12/4/2012 | 11:00:14 PM
re: IDC: Telco Data Boom Underway Not entirely. Needless to say, Optigirl and others who frequently post here will likely point out that it is often in analyst's best interests to paint a rosy picture, even if their only crayon color is black.

BUT... I have not yet heard of traffic volumes anywhere decreasing, or of Telecom carriers (most notably the big ones) un-lighting fiber or wavelengths, or decomissioning circuits. Despite the downturn, traffic volumes are still increasing, so one would asume there's at least a nugget of truth in this report.

The problem may lay in the fact that the big carriers still see the lion's share of the profits come from voice services, even when data dominates volume-wise. The problem here may be that they haven't quite gotten the trick of making money off of data, which for the big circuit-switched networks is basically a commodity.

Thus, it would seem likely that data-centric "value added services" might be the only way forward, but the telcos aren't extremely good at that.The CATV companies are a little more service-oriented, however, which may explain why they are faring somewhat better than the telcos.
purple 12/4/2012 | 11:00:15 PM
re: IDC: Telco Data Boom Underway Very strange assumptions, and not ones I will be betting the farm on. Wireless data growth, just when exactly do we expect to see genuine 3G services in Europe and more to the point who will want them and at what cost. Latin America? Do these people read the newspapers? Thses are the kind of baseless figures which caused the crisis we're all in.
veemee 12/4/2012 | 11:00:24 PM
re: IDC: Telco Data Boom Underway What are estimates based on? The CAPEX of all the big carriers seem on the decline. Who is spending?

Increase in traffic however does not always translate to increase in revenues as we more than often seen.
HarveyMudd 12/4/2012 | 11:00:25 PM
re: IDC: Telco Data Boom Underway The telecom industry has experienced and continues to experience serious decline in revenues. The IDC report does not lend credibility to the conditions of the market.

The telecom equipment manufacturers, Vcs,stock owners, and service providers have been affected.

The revenues are declining so fast that one of these days we may see AT&T getting out of business.
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