Telecom mergers begin to border on a frenzy

An industry where structural change has been held up by a combination of regulation and state ownership is cramming 10 or more years of restructuring into as many months

IT'S MERGER mania in telecoms. Well, it's merger mania in several other sectors too, including oil, autos and financial services, but the revolution in the structure of the global telecommunications industry has a special urgency unparalleled elsewhere.

Indeed, the changes in ownership are coming so bewilderingly quickly that it is quite hard to grasp what the new structure of the industry might be in, say, 10 years' time. It is still harder to figure out the social and economic consequences of such rapid change.

The jumble of information, plans, ideas and rumours has become particularly tangled over the last few days. There are big, straightforward deals such as the bid by AT&T for MediaOne, or the earlier take-over by Vodaphone of AirTouch. There are big, amorphous deals such as the tie-up between AT&T and BT on the one hand and Japan Telecom on the other. And there are big, nightmare deals such as the proposed Deutsche Telekom/Telecom Italia deal.

I don't think I can recall any other proposed liaison that has attracted the "marriage made in hell" label quite so swiftly, and it would be astounding if the deal were to go through, let alone be a success. But the very fact that people come up with deals that ignore the cultural dimension in business, shows the fury of the tempest that is sweeping across the industry.

Let's try to sort out what's happening. There are, I suggest, four quite separate elements to the telecoms revolution.

First is deregulation/privatisation. An industry where structural change has been held up by a combination of regulation and state ownership is cramming 10 or more years of restructuring into as many months.

Second is a rapid fall in the cost of production, brought about mainly by the switch from copper to fibre optics, but also by other changes such as the falling cost of satellites. Third is the development of new technologies, which have turned mobile communications from a niche market into a mass one.

And finally there has been a surge in demand from data traffic. The Internet boom means that telephony will, in the space of one decade, shift from being a medium for transmitting speech to one for transmitting data.

The changes are related. For example, the pressure for deregulation has come largely from the changing pattern of demand and the development of mobile communications. The surge in demand could not have been accommodated had there not also been a technical change, which created much more supply.

But the forces for change are separate. There was, after all, a surge in mobile communications before the medium switched from analogue to digital. So in thinking through the new structure of the industry you are best to begin by looking at each of these factors.

Regulation: it is hard to see any significant barriers remaining for long, because the competitive nature of the business is such that ways will be found to get round them. For example, while national phone monopolies may notionally remain, they won't matter much in competitive terms. If prices of fixed-line connects remain out of line, users will switch to mobile, where costs are plunging and technology is racing forward.

So the barriers to restructuring won't be regulation or ownership but rather culture and language. You can see this already. The barriers to the German/Italian tie-up are cultural: who will run the show and how many people in which country are going to be sacked?

Next, the falling cost of producing a telecommunications service: here, I believe the collapse in transmission charges has hardly begun. Calls anywhere in the world are already effectively free on the Internet, for example.

Consider what has happened to the hotel telephone. Hotels have traditionally charged large sums for using the phone by the bed - but GSM technology means we now use our mobiles instead. Even the premium for mobility will disappear, and as it does it is perfectly possible that voice traffic will transfer almost entirely to mobiles. If this is right, the industry is going to see much of its present revenue stream cut away.

Within a decade telecommunications will so cheap that we won't even think about them. If that is tough for the industry, it will also be fascinating in social and economic terms for the rest of us.

Mobility: at the moment telecom groups that are primarily fixed-line are larger than those that are primarily mobile. It is at least plausible that this will change, and that having a line into a home or office will cease to be an advantage. Having a billing relationship may even cease to matter, for if prices come down enough we may buy our calls as pre- paid phone cards from the supermarket.

We know that users like mobility, so there ought to be some premium for it. What we don't know is how large that will be and whether a purchase relationship will be more appropriate than a billing one.

Finally, data traffic: yes, it will carry on its explosive growth for several years, maybe a generation, before it too becomes a mature business, and yes, there will be some money in carrying the data because the volumes will grow so rapidly. But this is a commodity business, not a high-value- added one, so the money will be made only by groups that are globally the lowest-cost producers. The inevitable result will be many more global mergers and partnerships.

What are the structural implications of all this? I don't think it is possible to do more than guess at the appropriate structure for the industry 10 years hence, except to say that the companies will have to strive to be either low-cost giants or clever niche players.

Look, for example, at the motor industry. The barriers in the path of the trend towards this motor industry model will be cultural and national. To what extent does a country accept the idea of its communications being provided by a foreign multinational? If the motor industry is any guide, not much. Maybe the problem with that German/Italian job is that it is about a decade before its time.

Start your day with The Independent, sign up for daily news emails
A boy holds a chick during the Russian National Agricultural Exhibition Golden Autumn 2014 in Moscow on October 9, 2014.
Life and Style
love + sex
Ashley Young celebrates the winner for Manchester United against Newcastle
footballNewcastle v United 1 player ratings
Arts and Entertainment
Victoria Wood, Kayvan Novak, Alexa Chung, Chris Moyles
tvReview: No soggy bottoms, but plenty of other baking disasters on The Great Comic Relief Bake Off
Ashley Young celebrates the winner for Manchester United against Newcastle
footballNewcastle 0 Man United 1: Last minute strike seals precious victory
ebooksA special investigation by Andy McSmith
Life and Style
Tikka Masala has been overtaken by Jalfrezi as the nation's most popular curry
food + drink
Arts and Entertainment
Seth Rogan is one of America’s most famous pot smokers
filmAmy Pascal resigned after her personal emails were leaked following a cyber-attack sparked by the actor's film The Interview
Benjamin Netanyahu and his cartoon bomb – the Israeli PM shows his ‘evidence’
Life and Style
A statue of the Flemish geographer Gerard Kremer, Geradus Mercator (1512 - 1594) which was unveiled at the Geographical Congree at Anvers. He was the first person to use the word atlas to describe a book of maps.
techThe 16th-century cartographer created the atlas
Arts and Entertainment
80s trailblazer: comedian Tracey Ullman
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
The Internet of Things: Meet the British salesman who gave real-world items a virtual life

Setting in motion the Internet of Things

British salesman Kevin Ashton gave real-world items a virtual life
Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

Election 2015: A dead heat between Mr Bean and Dick Dastardly!

Lord Ashcroft reveals latest polling – and which character voters associate with each leader
Audiences queue up for 'true stories told live' as cult competition The Moth goes global

Cult competition The Moth goes global

The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

Pakistani women come out fighting

Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
Leonora Carrington transcended her stolid background to become an avant garde star

Surreal deal: Leonora Carrington

The artist transcended her stolid background to become an avant garde star
LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

Education: LGBT History Month

Pupils have been discussing topics from Sappho to same-sex marriage
11 best gel eyeliners

Go bold this season: 11 best gel eyeliners

Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

Cricket World Cup runs riot to make the event more hit than miss...

The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

Katarina Johnson-Thompson: Ready to jump at first major title

After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot