Emerging Markets Hold the Key to Future Telecoms

27. 01. 2007 | 1/2007 | Comments [0]

Emerging Markets Hold the Key to Future Telecoms. Emerging markets today account for more than half of the world’s total telecom connections, according to Gartner Inc. This will grow to 69 percent by 2010. Whilst sceptics point to a multitude of problems such as low disposable income and lack of competition, the rate of economic and population growth means developing regions offer major potential for communications expansion.

Emerging Markets Hold the Key to Future Telecoms

Developing countries will account for 69 percent of the world's phone connections by 2010

Emerging markets today account for more than half of the world’s total telecom connections, according to Gartner Inc. This will grow to 69 percent by 2010. Whilst sceptics point to a multitude of problems such as low disposable income and lack of competition, the rate of economic and population growth means developing regions offer major potential for communications expansion. Telecom companies should ignore them at their own risk.

“Emerging markets may be under penetrated by communications services, but the hunger for improved connections is strong,” said Jouni Forsman, research director at Gartner. “Compared to disposable income, phone users in developing regions are spending five times more on communications on a ‘per-user-basis’ than their counterparts in developed countries.”

Over the next four years it will be mobile connections that drive the industry. Gartner predicts that worldwide mobile connections will increase by 1.5 billion by 2010. Emerging markets will account for 87 percent of the increase. Combined with fixed connections, developing regions will account for 69 percent of the world’s total phone connections by 2010.

Table 1 – Telecom Connections in Developed and Emerging Markets

(Thousands of units)

2005

2010

CAGR 2005-2010

Share 2005

Share 2010

Fixed-line connections

Emerging markets

686,168.9

789,620.5

2.8%

55.7%

60.0%

Developed markets

546,474.5

527,193.8

-0.7%

44.3%

40.0%

Total

1,232,643.4

1,316,814.3

1.3%

100.0%

100.0%

Mobile connections

Emerging markets

1,364,589.0

2,675,386.7

14.4%

62.7%

72.7%

Developed markets

811,229.0

1,005,847.1

4.4%

37.3%

27.3%

Total

2,175,818.0

3,681,233.8

11.1%

100.0%

100.0%

Source: Gartner Dataquest (September 2006)

“The rapid expansion of the telecoms industry in these markets is being fuelled by under penetration and the fact that communication-enabled services are crucial for overall development,” said Mr Forsman. “This not only relates to telecoms and entertainment services, but to communications-enabled ‘life enhancing’ services such as banking, education and remote health. The high level of disposable income being spent on communications in developing countries today is clear evidence that the telecoms industry is mission critical in the emerging world.”

Whilst China and India still represent the largest opportunities, Gartner highlights Indonesia as a high growth location. In fact, Gartner forecasts that Indonesia will have more new telecom connections between 2005 and 2010 than Brazil and Russia. Worldwide, 50 percent of new communications connections in the next five years will come from the BRIC countries (Brazil, Russia, India and China) and Indonesia.

Table 2 – Net Increases in Fixed-Line and Mobile Connections

(Thousands of units)

Total Connections 2005

Total Connections 2010

Change 2005 2010

Emerging Markets

2,050,757.90

3,465,007.20

1,414,249.30

Developed Markets

1,357,703.50

1,533,040.90

175,337.40

China

724,878.00

1,043,311.50

318,433.50

India

124,864.10

442,594.40

317,730.30

Indonesia

61,461.80

133,134.00

71,672.20

Russia

164,856

209,816

44,960

Brazil

124,711.00

159,292.30

34,581.30

Source: Gartner Dataquest (September 2006)

One of the most significant bottlenecks that stand in the way of faster growth in emerging markets is communications infrastructure. Communications infrastructure providers are therefore a crucial part of the puzzle. These companies have years of experience in trying to improve communications in emerging markets and will prove invaluable in driving the communications phenomenon.

To evaluate the leading infrastructure vendors in emerging markets, Gartner has developed a framework* with close to 40 individual metrics. “On an individual vendor basis, no one company is strong in all respects,” said Mr Forsman. “However, our in-depth evaluation rates Ericsson as being in a strong position to take advantage of the growth opportunities in these markets. Alcatel, Nokia, Siemens and Huawei follow suit.”

Not only will emerging markets be responsible for growth. Mr Forsman said they will also become the innovation engine for the industry. “We are already witnessing leading carriers in the developed world using their developing country affiliates as new technology test beds. This trend is set to continue as research and development resources are typically less expensive and emerging market companies and end users are less risk adverse. Ultimately, everybody will be touched by what is created or ‘mass marketed’ in these regions, whether they have a presence there or not.”

Gartner said that the key to success is marrying low total cost of ownership of technology with local applications.

* The combination of three categories defines how well placed a vendor is to take advantage of the growth opportunities in these markets:

  • Focus: Proportionally, how much of a vendor's revenue comes from emerging markets.
  • Track Record or Market Share: In absolute terms, how much money a vendor makes in emerging markets.
  • Capabilities: A vendor's strength in terms of products, services, presence and financing, and how well it is organised for emerging markets.

For each category, and almost 40 subcategories, Gartner rated the vendors as poor, neutral, good or very good. When calculating the overall score for each vendor, it gave most weight to their capabilities, followed by their track record.

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