The Telecommunications Industry
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The Telecommunications Industry Minority Business Development: Economic Value And Benefits MED Week 2001 This Report Was Written And Produced For: U.S. Department of Commerce Minority Business Development Agency Ronald N. Langston National Director By: The Asaba Group, Inc. Lakeview Office Park www.asabagroup.com 214 North Main Street, Suite 207 Tel. 508.655.8100 Natick, MA 01760 Fax. 508.655.1955 This analysis on the economic value and benefits of the telecom industry was prepared by The Asaba Group and is the Group’s interpretation of the economic trends of the telecom industry. The study is not a Commerce Department report, but was developed for the sole purpose of discussion amongst industry experts. The conclusion and analysis of the report do not necessarily reflect the views of the U.S. government. Express Gratitude And Acknowledgement For Contributions To The Project: Minority Business Motorola Development Agency Bud Bowen Ronald N. Langston Nannette Kelley AT&T Advanced Fibre Communications Winston Smith Irene Fay Vicky Liston Cisco Systems Tellabs Denise Coley Steve McCarty Graybar Kimberly Johnson Karen Buckhart Lucent Technologies Heather Herndon-Wright Cornet Technologies Sant Gupta SBC Communications Production, Inc. Joan Kerr Keith Doucette Fujitsu MCI Communications Javier Fernandez Vern Davis Verizon Communications Lisa Smith Jeannie Diefenderfer Ericsson, Inc. Julian Birdsong Vicky Bunch ADC Lexicom Telecommunications Kathleen Riopelle Alexis Scott HCI Tchnologies Alcatel R. Martin Tony Shumaker Harvard Technologies Manny Chavez Content Project Overview/Introduction 3-6 Industry Trends 7-18 Demographic Realities 19-27 Minority Energy Markets 28-38 Minority Business Value Proposition 39-44 State of Minority Sourcing 45-53 Project Charter 4 Develop A Report That Shows The Economic Value To Corporations From Doing Business With Minority-Owned Companies Business case should place emphasis on the following: l Focus on business imperatives and free market forces l Leverage minority demographic shifts and emerging purchase power l Ensure alignment with current industry trends and strategies of key players l Drive increased participation in minority business development The Asaba Group Retained To Assist Building Business Case Project Approach 5 • Market trends Industry Trends/ • Industry dynamics Dynamics • Major player’s reactions Minority Market • Market and customer opportunities Assessment • Revenue expansion and growth • Brand differentiation Minority Business • Supply chain flexibility Value Proposition • Channel and market access • Current state Minority Sourcing • Issues and challenges and Partnerships • Future perspectives Executive Summary 6 Telecommunications services have grown 8% annually over last 5 years Broadband, wireless and data services expected to accelerate growth in the future Economy slowdown and industry slowdown has increased focus on developing strong consumer value propositions Service providers will use new innovative products to increase consumption and build brand loyalty to ensure profitability Minority consumers estimated to spend $56 Billion on telecommunications services One of the fastest growing consumer segments and expected to account for significant share of future revenues Service providers view minority segment as essential to long term success Industry committed to minority business development – spending $7.8 billion with MWDVBE suppliers Minority suppliers spend estimated at $4 Billion Future efforts should focus on high growth areas of the industry Content Project Overview/Introduction 3-6 Industry Trends 7-18 Demographic Realities 19-27 Minority Energy Markets 28-38 Minority Business Value Proposition 39-44 State of Minority Sourcing 45-53 Key Trends In The Telecommunications Industry 8 Telecommunications services revenues in 2000 approximately $283 Billion and growing at 8% annually Industry undergoing rapid change as a result of deregulation l Started with Telecommunications Act of 1996 l New industry forces and business models emerging – From constrained bandwidth (narrowband) to unconstrained bandwidth (broadband) Recent industry declines in sales and market values has sharpened focus on building customer-focused value proposition l A function of reduced levels on capital expenditures by service providers l Consumer adoption of new services is essential to future success Long-term industry fundamentals remain quite strong l Data traffic has grown significantly surpassing voice – But voice still accounts for significant share of total revenues l Wireless and internet traffic continues to grow Fragility of revenues a continuing trend with service providers l Traditional voice revenues approach commoditization and pricing pressures l Bundling new services (e.g., data and voice) essential to hold on to customers l Service providers seek new avenues for brand differentiation and customer loyalty Telecommunications Services Industry Seen Modest Growth During Last 5 Years Wireless Services Has Been Fastest Growing Segment 9 Telecom Service Revenues (1997–2000) CAGR $350 97-00 $ Billion $300 $288 B 8.1% $264 B Wireless $245 B 24.1% $250 $230 B Wireless $58 B Wireless $47 B Wireless $40 B $200 $34 B Toll Toll 3.9% Toll Toll $150 $113 B $108 B $101 B $105 B $100 Local Local Local Local $50 7.1% $109 B $95 B $100 B $117 B $0 Local 1997$109B 1998 1999 2000 SOURCE: Multimedia Telecommunications Association, Cellular Telecommunications & Internet Association Industry Slowdown Is A Function Of Reduced Levels Of Capital Expenditures By Service Providers Spending Levels And Future Growth Expected To Trend Downward 10 Telecom Service Industry Average Capital Telecom Service Industry Average Capex Expense Growth1 to Sales Ratio 40% 0.30 Capex to 0.27 0.16 Sales Ratio 1991–2000 27.0% 0.25 Average 0.21 21.0% 11.1% 0.19 0.19 20% 1991–2000 0.20 Average 0.17 11.0% 0.16 0.16 0.15 3.0% 1.0% 1.5% 0% 0.10 -4.7% 0.05 -20% 0.00 1991 1994 1996 2000 2001 2003 2005 1991 1994 1996 2000 2001 2003 2005 1. Includes AT&T, BellSouth, Quest, SBC, Verizon, Worldcom, CenturyTel SOURCE: Morgan Stanley Dean Witter, Financial Times However Demand Drivers Are Still Strong Data-Based Products Growing Faster Than Voice Products 11 Telecom Service Revenues 500 $ Billion $420 B CAGR 400 95–00 00-05 Data 38.5% 24.1% $150 B 300 $272 B Data $51 B 200 $164 B Voice Data Voice $10 B 7.5% 4.1% 100 Voice $270 B $221 B $154 B 0 1995 2000 2005 Future Growth Will Be Driven By Data SOURCE: McKinsey & Company, JP Morgan, Asaba Group Analysis Internet Access And Usage Are Strong Drivers For Data Services Expect Higher Penetration And Usage With Broadband Access 12 U.S. Internet Household Penetration Hours Spent Online Per Month 25 90 85.0 MM Million Hours 80 Per 21.4 Dial-up 73.8 MM Month 70 Broadband 67.5 MM 20 60 15.9 64.7 15 50 49.2 MM 44.1 MM 61.8 40 60.9 10 30.3 MM 30 46.7 42.4 20 30.1 5 10 20.3 12.0 0.2 1.7 2.5 6.6 0 0 1Q99 4Q99 1Q00 4Q00 4Q01 4Q02 Using Narrowband After Switching to Broadband Broadband Service Is New Growth Platform In The Industry SOURCE: Telecommunications Reports International, Industry Standard, McKinsey & Company, Merrill Lynch, Asaba Group analysis Wireless Subscriber Growth Has Been Significant In Last Five Years Largely Driven by Small Business and Residential Customers 13 U.S. Wireless Subscribers CAGR 125 95–00 Subscribers 109 MM 26.2% (MM) Key Trends 100 • Largely voice-based service 75 • Huge potential for data-based services • Full-service mobility 50 for competing and 34 MM interactive entertainment 25 applications 0 1995 2000 Demand Drivers For Wireless Service Expected To Be Strong SOURCE: Cellular Telecommunications & Internet Association Broadband, Wireless, And Calling Cards Fastest-Growing Product Segments 14 Telecom Products/Service Revenues (1999–2004) CAGR 99–04 $450 $420 B 9.4% $ Billion Broadband $19.6 B 89.6% $400 Calling Cards $5.2B 11.9% Wireless $350 18.4% $108 B $268 B $300 Broadband $0.8 B Calling Cards $3.0 B $250 Wireless Long Distance $47 B 4.7% $200 Long Distance $136 B $150 $108 B $100 Local Local 6.7% $50 $151 B $109 B $0 1999 2004 Residential And Small Business Customers Expected To Account For Significant Share Of Future Revenue SOURCE: MultiMedia Telecommunications Association (MMTA), Federal Communications Commission Residential Customers Account For Significant Share Of Broadband Customers For ILEC’s And Cable Operations 15 Broadband Customer Mix (2000) 2.7 MM 0.3 MM 5.1 MM 100% Business Business Millions of 13% Customers 20% 75% Business 71% Residential 50% Residential 80% 87% 25% Residential 29% 0% ILECs CLECs Cable SOURCE: TeleChoice, MultiMedia Telecommunications Association, Merrill Lynch, Asaba Group analysis Residential Customers Account For Most Growth In Long Distance 16 Toll Revenues: Residential vs. Non-Residential CAGR 90-99 $66.8 B $108.2 B 5.5% 100% Non-Residential Non-Residential 75% 57.6% 63.9% $62.4 B $42.7 B 4.3% 50% Residential Residential 25% 42.4% 36.1% $45.9 B $24.1 B 7.4% 0% 1990 1999 SOURCE: Federal Communications Commission Consumer Telecommunications Expenditures Have Risen Over Last 4 Years A Significant Monthly Expenditure For Consumers To Seek Competitive Providers 17 Estimated Residential Communications Spending/Month %% ServicesServices 19961996 20002000 TrendTrend ChangeChange Local 25.50 34.50 á 35.3% Long Distance 28.00 25.10 â (10.4%) Cable 26.20 39.30 á 50.0% Wireless 44.30 44.00 â (0.7%) Internet Access 19.95 24.50 á 22.8% Broadband1 NA 42.00 NA NA TOTAL 143.95 209.40 á 45.5% Building End-Consumer Loyalty Essential In