The Primary Services and Products of Telecommunications Sector - Essay Example

Telecommunication The primary services and products of telecommunications sector: Telecom industry is one of the leading industries in the United States at present. The major focus of the telecom operators today is in the Voice over Internet Protocol Service (VoIP). “Voice over Internet Protocol (VoIP) is a technology that allows you to make voice calls using a broadband Internet connection instead of a regular (or analog) phone line.” (Consumer & Governmental Affairs Bureau. 2007). It is a technology that enables the user to make calls to the phone through internet. Almost all of the telecom operators in the US offer services in voice, data and internet operations. Prepaid calling cards are one of the main products that the companies offer to the consumers. The companies provide internet access both in the form of dial up and broad band connections. The telecom companies provide services not only to individual consumers but also to major business enterprises. They also provide call centre services to the business organisations. The companies also facilitate private lines exclusively for the business customers. There is also great prospect for offering videos, mobile television, video enabled mobile phones etc especially among the youth. There are both GSM and CDMA service providers in the market. How is money made in this business? Telecom is one major sector where the companies reap profits than any other industry. Though the companies have diversified their services from the traditional activity of any telecom company that is operating calls to the high tech internet services, the major portion of the profits still comes from the calling services provided. There are both the prepaid and the post paid option for the consumers. The companies make a huge amount of profit by providing the internet services. Nowadays the companies are competing together by providing internet in the mobile handsets. These are highly profitable for the companies. They also make a greater margin of profits by selling mobile handsets. Mobile handsets are becoming more and more advanced day by day, and consumers have developed an intense fascination for such products. As a result, the prices of the handsets diminish very easily as there is increased supply through a wide array of competing producers. So the company makes profits by skimming strategy whereby high prices are charged in the initial stages. Most companies are now adopting the strategy of cost reduction and thereby increased volume of sales. They create products and services strictly on the basis of consumer demands. How profitable is this sector of the telecommunications industry? The telecom companies in the US have an EBITDA margin of 32%. “The EBIDTA margin is EBITDA (or earnings before interest, tax, depreciation and amortisation) as a percentage of sales and analysts often consider this a more useful indicator of efficiency than operating margins because it excludes non-cash items.” (Telecom Companies World Leaders in Profitability, 2007). Telecom sector is a billion dollar playing field among the other sectors. The net income of the sector player AT & T during 2005 rose to $1.66 billion from $688 million during the year 2004. Similarly, the profits of Sprint Nextel are reported to increase 7% yearly. It is also stated that the customer base of the company peaked to 53.1 million by additions of 74, 2000 new customers. The profits of the wireless services provided by the company also increased remarkably. Verizon Wireless another service provider became the country’s largest telecom operator in terms of profit. The net profit of Verizon Wireless for the year ended 2006 was $2,976 million which was an increase of over 34.1% from the 2005 results. Who are the key players? A new era in telecommunication began with the introduction of US Telecommunication Act of 1996, incorporating extensive and significant changes and replacing traditional 1934 Act, in conformity with advances in technology as well as opening new avenues to service providers. The vast majority of US telephone companies were privately owned from the time of Alexander Graham Bell. “The Telecommunication Act of 1996 eliminated all remaining statutory monopolies in telecommunications: States could no longer grant exclusive rights to any provider. The new law provided innovation and inclusions among competitors through promoting local exchange competition, permitting local carriers into new markets, creating universal service, and paved way to promulgation of Communications Decency Act to prevent obscenity and violence through internet and other computer network.” (NTIA 1996). Subsequently, the US telecommunication sector witnessed consolidation of major players in the industry with Verizon’s acquisition of MCI, SBC Corporation’s acquisition of AT & T Corp, and AT &T’s acquisition of Bell south. Verizon, AT & T, Qwest, 3G Networks, and Sprint Nextel are major players in the telecommunication industry in the US. Driven by developments in the telecommunication market and global changes in digital media activities more and more companies like Google, YouTube, Skype, Amazon, Yahoo, MSN, News Corp, and other web players are now dominating the industry. Current trend There are immense prospects for telecommunication industry with fast technical advancement in the field. Broadband, a high-speed Internet access for data transmission and high quality services, using several advanced transmission technologies like Digital Subscriber Line (DSL), Cable Modem, Optic Fiber, Wireless Satellite, and Broadband over Power Line (BPL) has revolutionized communication industry. Voice over Internet Protocol (VoIP) using “internet Protocol” helps to convert voice signal from telephone into a digital signal that can travel over the Internet is the new trend setter in this industry. (What is Broadband? 2007). Though technological advancement paved way for fast and accurate communication services, certain stringent government rules limited the scope of its successful implementation. Telecommunications Act required local exchange carriers to unbundle their network and grant access to competitive local carriers at non-discriminatory conditions. This was challenged in the courts and the government was forced to change the provision to line sharing as a separate network. It is observed by Bauer and Bohlin that “lack of viable access networks combined with the huge capacity of the long-haul networks has led to a devastatingly high surplus of capacity i8n the long haul networks. Literally billions of dollars have been lost of written off as a result of this ‘Last Mile Dilemma”. Telecommunication carriers, investors, application developers businesses and governments are desperately seeking a solution to this Last Mile Dilemma.”(2007). Only an economically viable, commercially driven, and unbiased solution which meet the goals of customer expectation should be the ultimate goal of service providers to succeed in Telecommunication Industry. References Consumer & Governmental Affairs Bureau. (August 7, 2007). Federal Communications Commission. Retrieved October 23, 2007, from http://www.fcc.gov/voip/ Telecom Companies World Leaders in Profitability. (July 23, 2007). IBEF. Retrieved October 23, 2007, from http://www.ibef.org/artdisplay.aspx?art_id=16186&cat_id=60&refer=n37 Bauer, M. Johannes & Bohlin, Eric. (May 14, 2007). Recent developments in U.S Telecommunication Deregulation: Relevance for Europe. Retrieved October 23, 2007, from http://quello.msu.edu/reports/Bauer-Bohlin-US-EU-2007.pdf National Telecommunication and Information Administration. National Telecommunication Act of 1996. NTIA. Retrieved October 23, 2007, from www.ntia.doc.gov What is Broadband? (April 17, 2007). Federal Communications Commission. Retrieved October 23, 2007, from http://www.fcc.gov/cgb/broadband.html Read More