Global Telecommunications Primer
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MORGAN STANLEY DEAN WITTER Equity Research June 1999 Global Telecommunications Global Telecommunications Primer A Guide to the Information Superhighway The Global Telecommunications Team 118 MORGAN STANLEY DEAN WITTER Telecommunications Service Providers: A Guide The major difference among carriers is whether they are The incumbents can be further divided between local ex- wireless or wireline operators. Some carriers specialize in change carriers and long distance carriers. Incumbent local one service, but many wireline companies overlap in that exchange carriers (ILECs) held (and, in some cases, still they have units or subsidiaries that operate in the wireless hold) the dominant position in the local calling market. In market. These companies are grouped in the wireline cate- most markets, this dominant position is being eroded by the gory, since that still forms the primary component of their entrance of competitors. Like the dominant local players, business. The wireless companies can be further divided the incumbent long distance carriers once (and often still do) between those providing mobile telephony and those offer- held a dominant or monopolistic position. Long distance ing paging services. Some wireless providers offer both carriers, regardless of whether they are incumbents or not, mobile telephony and paging. are considered to be interexchange carriers (IXCs). Unless they simply resell another IXC’s lines, interexchange carri- We have put telecommunications service providers into one ers own the switching and transmission equipment (fiber of seven categories, and in some cases more than one cate- optic cables, microwave towers, multiplexing equipment, gory. Throughout the world, the names of the categories and switches) that carry long distance calls. In many mar- may differ, but the fundamental qualities of those inhabiting kets, the state-run monopoly in the local market is the same that realm of the telecom market are the same. The seven state-run monopoly in the long distance market. Both local categories are: incumbent local exchange carrier, incumbent and long distance incumbents are being threatened by what long distance carrier, competitive local exchange carrier, we have termed alternative carriers. long haul fiber provider, competitive international carrier, wireless phone carrier, and paging services companies. Alternative carriers are the new entrants to the telecom mar- kets. Through deregulation, or the breakup of monopoly Incumbent carriers are those that have been in the market players, potential profit opportunities have been opened up. for a long period of time. Typically, they were monopoly New entrants have seized upon this opportunity and are en- licensed and often run by the state. This is changing as tering the global telecom markets. The rapidity with which these state-owned incumbents are privatized and regulators they are entering varies across regions, depending on the loosen their monopolistic hold. regulatory status of the market. Alternative carriers have Figure 1 Telecommunications Service Provider Classification Telecommunications Service Providers Incumbent Service Providers Alternative Service Providers Wireless Service Providers Cellular Local Carrier Long-Distance Competitive Local Long-Haul Fiber Competitive Paging (ILEC) Carrier (IXC) Carrier (CLEC) Provider International Carrier Service Provider Provider Source: Morgan Stanley Dean Witter Equity Research This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. Please refer to the notes at the end of this report. MORGAN STANLEY DEAN WITTER 119 typically entered the telecom markets in one of three areas: own lines. Fiber providers may simply lay fiber optic lines local, long distance, or international long distance. and sell them to interexchange carriers, they may lay lines and resell service from IXCs, or they may lay lines and offer Competitive local exchange carriers (CLECs) are new en- their own service over these lines. The huge growth in data trants in the local market, directly challenging the incum- traffic has caused an explosion in the long haul fiber pro- bent local provider. They mount a challenge typically vider market, as competitors rush to meet demand expecta- through one of three strategies. First, a local competitor tions. may simply resell the incumbent’s service. Resale typically results in slim margins. In addition, the reseller is depend- The third type of alternative carrier is the competitive inter- ent on the incumbent. Second, a local competitor may in- national carrier. These competitors challenge the traditional stall some of its own equipment, giving it slightly higher international long distance companies (which are usually the margins and a bit more independence from the incumbent. largest of the incumbent domestic long distance carriers). Third, a local competitor may build out its own facilities. Typically, competitive international carriers run lines be- This strategy requires a great deal of capital expenditures, tween countries or continents. Like the long haul fiber pro- but offers the greatest margins and independence from the viders, competitive international carriers may simply sell the incumbent carrier. fiber they have installed, or they may offer telephone serv- ice over their lines. When offering service, they typically Another type of alternative carrier is the long haul fiber pro- make their profit from the tariff differentials between coun- vider in the long distance market. Fiber providers challenge tries. the incumbent long distance providers by constructing their Table 1 Asian Telecom Carrier Breakout Incumbent Carrier Alternative Carrier Wireless Carrier Competitive Local Long Compeitive Long-Haul International Market Distance Local Fiber Carrier Mobile (ILEC) (IXC) (CLEC) Provider (CIC) Telephony Paging Advanced Info Service XX China Telecom (HK) X Chunghwa Telecom X X X Hongkong Telecom X X X Indosat X MTNL X Phil. Long Distance Tel. X X PT Telkom X X Singapore Telecom X X X X SK Telecom XX SmarTone Mobile Comm. X Technology Resource Ind. X X X X TelecomAsia X Telecom Corp. of New Zealand X X X X Telekom Malaysia X X X Telstra X X X Thai Telephone & Telecom. X Total Access Comm. X VSNL X Source: Morgan Stanley Dean Witter Equity Research This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. Please refer to the notes at the end of this report. 120 MORGAN STANLEY DEAN WITTER Table 2 Japanese Telecom Carrier Breakout Incumbent Carrier Alternative Carrier Wireless Carrier Competitive Local Long Compeitive Long-Haul International Market Distance Local Fiber Carrier Mobile (ILEC) (IXC) (CLEC) Provider (CIC) Telephony Paging Astel X DDI XX Digital Tuka X IDC X IDO X ITJ (now merged with Japan Telecom) X Japan Telecom X J-Phone X KDD (International) X Local Regional NCCs (TTNet) X NTT X NTT (Domestic) X NTT DoCoMo XX Regional players X Teleway (now merged with KDD) X Tuka X Source: Morgan Stanley Dean Witter Equity Research This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. Please refer to the notes at the end of this report. MORGAN STANLEY DEAN WITTER 121 Table 3 European Telecom Carrier Breakout Incumbent Carrier Alternative Carrier Wireless Carrier Competitive Local Long Competitive Long-Haul International Market Distance Local Fiber Carrier Mobile (ILEC) (IXC) (CLEC) Provider (CIC) Telephony Paging British Telecom X X X X Cable & Wireless Communications X X X Cable & Wireless (see main subsidiaries) - Optus (Australia) X X X X - One2One X - see also CWC (above) - see also Hongkong Telecom (Asia) COLT Telecom X X Deutsche Telekom X X X X Energis XX Equant (NB: price in US$) X Europolitan X France Telecom X X X KPN X X X X Mannesmann X X X MATAV X X X X Netcom X Netcom Systems X NTL XXX Orange XX OTE X X X X Portugal Telecom X X X X Rostelecom X Samara Svyazinform X XX Securicor X SPT XX XX Swisscom X X Telecel X Telecom Italia X X Telecom Italia Mobile X Telefonica XX XX Telekommunikacja Polska X X X X TeleWest X X Uralsiazinform X XX Vimpelcom X Vodafone XX Source: Morgan Stanley Dean Witter Equity Research This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. Please refer to the notes at the end of this report. 122 MORGAN STANLEY DEAN WITTER Table 4 Latin American Telecom Carrier Breakout Incumbent Carrier Alternative Carrier Wireless Carrier Competitive Local Long Compeitive Long-Haul International Market Distance Local Fiber Carrier Mobile (ILEC) (IXC) (CLEC) Provider (CIC) Telephony Paging CANTV X X X X CTC X X X X Embratel X Iusacell XX T. C. Sul X X T. N. Leste X X Tel. del Peru X X X X Tele Cel. Sul X Tele Centro Oeste X Tele Leste Cel. X Tele Nordeste Cel. X Tele Norte Cel. X Tele Sudeste Cel. X Telecom Argentina X X X X Telefónica de Argentina X X X X Telemig Cel. X Telesp X X Telesp Cel. X Telmex XX XX Tricom X X X X Source: Morgan Stanley Dean Witter Equity Research This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned.