Your Television Is Ringing a Survey of Telecoms Covergence L October 14Th 2006

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Your Television Is Ringing a Survey of Telecoms Covergence L October 14Th 2006 Your television is ringing A survey of telecoms covergence l October 14th 2006 Republication, copying or redistribution by any means is expressly prohibited without the prior written permission of The Economist The Economist October 14th 2006 A survey of telecoms convergence 1 Your television is ringing Also in this section All things to all men Two other kinds of convergence. Page 3 The end of the line Traditional xed-line telephony has had its day. Page 5 Home and away After many false starts, xed and mobile phones are getting ready to merge. Page 7 Tuning in to the future? Telecoms rms are moving into television, but it may not be a licence to print money. Page 10 Changing the rules How should regulators respond to conver- Convergence is the telecoms industry’s new mantra. Whether gence? Page 12 customers really want it is another matter, says Tom Standage HAT has come over the telecoms in- Meanwhile, large internet companies Winners and losers Wdustry? The spectacular crash of including Google, Yahoo! and Microsoft’s Who will benet most from convergence? 2001, with its associated bankruptcies, MSN marched into the telecoms business Page 14 fraud and the destruction of around $1 tril- by launching new services oering free lion of investors’ money, has evidently calls over the internet. Skype, the leader in been forgotten. The gloom has given way this market, was acquired by eBay for $2.6 to a fresh sense of opportunity and a re- billion. And equipment-makers began newed frenzy of dealmaking. The past teaming up too: Cisco, the world’s largest couple of years have seen a series of huge network-equipment rm, bought Scien- takeovers and mergers among network tic-Atlanta, which makes television set- operators and makers of telecoms equip- top boxes, for $6.9 billion; Alcatel and Lu- ment around the world. cent agreed to merge in an $11 billion deal; In America SBC paid $16 billion for and Nokia and Siemens combined their AT&T, took its name, and then swallowed network-equipment divisions. BellSouth for a further $67 billion. Its rival At rst sight these deals might not ap- Verizon, meanwhile, bought MCI for $8.4 pear to have much to do with each other. billion. In Europe Telefónica, Spain’s na- But all of these transactions were tional incumbent operator, bought O2, a prompted by a single underlying trend wireless rm with networks in several that has become the industry’s new man- European countries, for £17.7 billion ($31.3 tra: convergence. billion). NTL, Britain’s cable operator, bought Virgin Mobile, a mobile operator, All together now for £962m. Vodafone, the world’s biggest What this means, roughly, is the coming mobile operator by revenue, signalled a re- together of previously separate communi- treat from its global ambitions and sold its cations and entertainment services: xed Japanese arm to Softbank, a local wireline and mobile telephony, broadband in- broadband operator, for $15.4 billion. ternet access and television. But more of- In addition to these and many other ten the word is used in a quasi-mystical A list of sources can be found online deals, operators around the world began way to evoke information heaven. Con- www.economist.com/surveys building next-generation networks at vergence really means the freedom for vast expense. Verizon is spending over $18 consumers to use any service under any An audio interview with the author is at billion on its new network, and Britain’s circumstances they choose to, says Ben www.economist.com/audio BT is spending £10 billion. These networks Verwaayen, the boss of BT. It is a question allow telecoms operators to oer televi- of convenience, enriching people’s lives, Past articles on telecommunications are at sion service in addition to voice calls and because we can provide communications, www.economist.com/telecoms broadband internet access. information and entertainment the way1 2 A survey of telecoms convergence The Economist October 14th 2006 2 they want it, says Mark Wegleitner, chief Robert Lloyd of Cisco. A converged, all-IP multichannel television. This explains technologist at Verizon. We want to bring network of this kind has two immediate many of the deals that have taken place in simplicity to our customers, the rst step technical advantages for network oper- recent months. AT&T, which is already towards digital paradise! exclaims Didier ators, he says. The rst is that it costs less to rolling out a fast new network to carry TV Lombard, the chairman of France Telecom. run, thanks to its far simpler architecture signals, bought BellSouth in order to win In fact, although the industry likes to and the economies of scale associated full control of Cingular, its wireless joint depict convergence as a great boon for cus- with internet standards. BT, a rm widely venture, and complete the quadruple-play tomers, it actually involves a technological regarded as a pioneer in the switch to next- package. Softbank, which already oers shift that, in the rst instance at least, will generation networks, expects its operating television, voice calling and internet ac- primarily benet network operators. At its expenses to fall by 30% once its new 21st cess over xed broadband links under the heart, convergence is the result of the tele- Century Network (21CN) is completed in Yahoo! BB brand, bought Vodafone Japan coms industry’s embrace of internet tech- 2009. By 2010 you will have to look very to add mobile to the mix. Similarly, NTL nology, which provides a cheaper, more hard to nd a xed or mobile operator that bought Virgin Mobile, and America’s big ecient way to move data around on net- is not running its trac over an IP core, cable operators last year struck a deal with works. On the internet everything travels says Mr Lloyd. Sprint Nextel, a wireless operator. in the form of packets of data, encoded The second advantage is that in theory, The desire to oer a one-stop shop for using internet protocol, or IP. The same new services can be added far more quadruple-play services has also system can also be used to encode phone quickly and easily, without the need to prompted several national incumbent op- conversations, text and photo messages, add any new network infrastructure. Add- erators to reabsorb their previously sepa- video calls and television channelsand ing a new service amounts to little more rate wireless operations. And it has hast- indeed anything else. than adding software to the core of the net- ened consolidation among telecoms- It is only relatively recently that IP tech- work and perhaps some new access tech- equipment vendors, such as the Alcatel- nology has matured to the point that it can nologies around the edges. Lucent and Nokia-Siemens deals. Large carry these other services reliably and e- operators have concluded that buying as ciently, says Basil Alwan, the president of The rise of the quadruple play much as possible from a single equipment- IP activities at Alcatel. But now that it has Because of the convergence on IP net- maker increases their bargaining power happened, operators can replace a jumble works, companies that used to be in sepa- and avoids problems with integrating of dierent networks for services such as rate industriestelephone operators, in- equipment from dierent suppliers. voice, data and videoeach with its own ternet-service providers and cable-TV Operators claim that selling all four ser- order-entry, billing and fault-reporting rmssuddenly nd themselves in the vices together as a bundle makes life easier systemswith a single network on which same business. Cable companies now of- and more convenient for customers. Cus- everything travels as interleaved streams fer broadband internet and voice services tomers in our experience really want that, of IP packets. The ultimate goal is to have over networks that used to carry just tele- says Ed Whitacre, the swashbuckling one IP infrastructure, and services running vision, and telecoms rms have upgraded Texan boss of AT&T and one of the most on that infrastructure, says Mr Alwan. their networks to carry television signals. vocal proponents of the merits of bun- This convergence aects not only wire- In the new converged world any rm that dling, and we can give them a better line networks, but wireless ones too. To- can deliver an IP stream to customers over price. The average American household day, operators run separate but intercon- its network can oer any or all of these ser- spends $176 a month on telephone, broad- nected networks for xed and mobile vices. And oering several of them to- band and television services, according to phones. But the new converged networks gether, many operators believe, is a win- gures from Parks Associates, a consul- are access agnostic. In short, a single core ning strategy. tancy. Mr Whitacre’s stated aim is to re- network may have a variety of devices Hence the current scramble to oer the duce costs by building a converged net- connected to its edges via dierent tech- quadruple playthe name given to the work, and to oer the quadruple play for nologies. Traditional xed-line phones combination of xed and mobile tele- as little as $100 a month. might be connected via wires; mobile phony, broadband internet access and There is indeed evidence that custom- phones via base-stations; and televisions ers like the discounts associated with bun- or computers via broadband telephone dles and the convenience of a single bill. lines or Wi-Fi links. Triple vision 1 Customers are much more open to pur- Access agnosticism should enable a Triple-play subscriber forecast, m chasing via the bundle, says Mikal Harn, mobile phone, say, to connect to the core vice-president of consumer marketing at Asia-Pacific Western Europe AT&T network via Wi-Fi in the home and then North America Other .
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