Future Telecom Markets and Strategy to Cope with the Change (original) (raw)
2009, SSRN Electronic Journal
This paper aims to give an insight into structure of future telecom markets and provide a strategy for the present day telecom operators to operate efficiently in the rapidly transforming telecom world. Multimedia intensive (converging video, voice and data) and peer to peer applications have increased the number of services running on same infrastructure. Internet Protocol (IP) has revolutionized the telecom network providing uniform interface and a separation between infrastructure and services. Present day telecom markets around the world consist of operators organized as vertically integrated silos because the local telephone industry was always thought to be naturally prone to monopoly due to scale and scope economies. The evolution of multiple services on same network is changing the whole buildup of telecom markets. This paper intends to observe the effects of this evolution on market structure and propose strategy for telecom operators to cope with new market structure. The target of the paper is to apply Transaction Cost Economics (TCE) to study the effects of above said factor. TCE has been applied to study issues relating vertical integration in many fields. IP and the Internet create a large variety of services. Earlier the bandwidth was used only for voice so its specificity was high. Introduction of multiple services using the same bandwidth has lowered bandwidth specificity. Basic transaction cost model presented by Williamson is extended to observe the effects of aforementioned factor to the organization structure of telecommunication firms. The decrease in bandwidth specificity will increase the market procurement range. A mathematical model is developed to observe this effect. It has been observed that this effect favor market procurement to internal supply. Hence future telecommunication markets will be gradually divided into two groups. One group will consist of bandwidth providers and the other will consist of service providers. To get maximum benefit from this theory, the bigger company has to disintegrate or at least divide into two sub companies. One that is only concerned with selling bandwidth and access to others and second that is concerned with service creation, management and marketing.
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