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Friday, January 12, 2007

Telecom : The Convergence Effect

With advances in technology leading t the tearing down of walls, the telecom industry is poised to become a sectorless industry and is poised for
massive changes. The sector looks like all set to change more and more. Imran Shah of IBB Consulting has an insightful view of the developments in the US telecom space.He thinks that fixed-mobile convergence is an area that is going to be taking off but expects that this is going to be a very, very different situation than what happened in the long distance arena or in submarine cables, transatlantic submarine cables, which was hyper-competition, in which eventually everybody kind of pulled each other down. He adds,

What we are moving toward is a duopoly. The telcos don’t compete with each other, the cable companies don’t compete with each other, but they compete amongst each other. Telcos don’t compete with telcos and cable companies don’t compete with cable companies. So, in each market, there are two major full-service providers that have all four services: broadband, video, phone, and mobile. So it’s a perfect duopoly, which means that there has to be a lot of innovation without the hyper-competition and the price erosion that comes with it, which is kind of a great breeding ground for very good, healthy growth because none of them can outprice and kill the other one. It’s not like having two companies and one of them is bigger, and you can price-cut them. Nobody’s going to make Comcast bankrupt by price-cutting them, and vice versa.

His prediction for the future: There will be two healthy duopolies, and then there will be a couple of pure plays. Satellite is a pure play, and a company like T-Mobile and others like it are pure plays, which will be mainly price plays.

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