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Telecommunications rises above challenges

China Business Weekly

While the telecommunications industry has been facing significant challenges over the past three years, its social, political and economic importance to businesses, markets and governments worldwide has continued to advance. To fully appreciate this we need to understand the three significant dynamics at play.

First, the industry's impact is accelerating.

The shift from traditional wireline to wireless is advancing. Worldwide mobile subscribers were up 20 per cent in 2002 over the previous year. In the Chinese mainland alone there are approximately 4 million new wireless subscribers each month. The number of wireless subscribers in India has more than quadrupled in the past three years, and Russia's subscriber base has increased tenfold during the same period.

Today there are approximately 90 million broadband subscribers worldwide, with almost one-third of them located in South Korea and Japan. And network traffic continues to grow, driven by data. Internet traffic is expected to grow around 85 per cent in 2003 alone.

Second, telecoms investment can provide a productivity dividend, meaning productivity improvements at a comparatively low cost.

In North America today we are experiencing an increase in economic output without an increase in labour needs. At the beginning of December, in fact, the US labour department announced its most significant productivity improvement in 20 years.

This type of improvement is partially attributable to a faster pace of technological change and innovation, seeded by earlier improvements, R&D spending and patent activity.

This productivity improvement is further seen in emerging markets. In Turkey, the total-factor productivity, which reflects increases in productivity in technological improvements, has accelerated from an average of 0.5 per cent in the 1990s to 4.7 per cent in the last two years.

Third, these advancing telecommunications technologies can allow emerging markets and developing countries to leapfrog over traditional industry cycles, delivering a profound social, economic and political impact.

The United Nations believes that in today's world, accessible telecommunications is now a human right on the same footing as health care and literacy. Consider that 62 per cent of North Americans currently have Internet access. The number is less than 1 per cent in Africa.

Countries like India believe that a robust and reliable telecommunications infrastructure will be a significant tool for increasing their prosperity, attracting foreign investment and driving economic and social change. Further, they are not burdened by legacy network investments, meaning they can and are moving quickly to affordable state-of-the-art technologies.

For example, India recently installed a total optical network in six months. The conventional time would be approximately 12-18 months. India and China are both graduating more computer engineers than we are in North America.

In the past, emerging economies experienced the same decades-long industry cycles, in traditional sectors like mining and manufacturing, as we did in North America. This will not be the case with telecommunications. New technologies are enabling those countries to skip over what were major milestones in those cycles.

However, globally, data traffic travels on public and private networks that are becoming increasingly compromised as traditional business models come up short.

Data traffic is increasing dramatically without a proportional increase in revenue being generated by service providers.

At the same time, historical voice communications do not generate sufficient revenues for service providers to cover the costs of upgrading and enhancing existing networks.

Worldwide carriers are facing increasing volumes and mounting operating costs.

Their challenge is to keep capital outlays down while maintaining or increasing revenues. But when you see your revenue going down and costs going up, you know your business model is in trouble.

Therefore, governments and business need to expand their imagination and embrace new business models today.

For us, that means ensuring current public and private networks are transformed; becoming more powerful, with a multipurpose infrastructure to deliver rich new network services and manage escalating traffic.

These transformed networks are smarter, more intuitive, always on, accessible from anywhere, offering both voice and multimedia but also convenience and cost economies. Data and voice are becoming ubiquitous network properties. Networks will be characterized by a common language, interoperability and no access barriers.

Boundaries between private and public, wireline and wireless, voice and data networks will disappear.

These developments give companies the potential to grow in new directions and enjoy unprecedented flexibility and customization and the opportunity for more direct customer engagement. As barriers to efficiency, productivity and growth are removed, new ways of doing business and growth opportunities will continue to emerge.

The above is excerpted from a speech by Frank Dun, president and chief executive officer of Nortel Networks, to the Empire Club of Toronto on December 4.

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