Competition in the telecommunication equipment industry

Abstract

The Telecommunication industry belongs to basic infrastructure industry/services segment of the new economy and plays an important role as a key enabler of increased economic. activity. Starting off about 125 years ago, the world market for telecommunications (services and equipment) doubled between 1990 and 1999 and was worth over USD 1000 billion in 1999. The services segment accounted for almost three quarters of global telecommunication revenues or some USD 800 million. The telecom equipment industry is estimated to be about 375 USD billion in 2002 growing at about 20% an annum in the last 10 years. This segment is the focus of this paper. This segment is interesting to study, technology and business strategy and also because they provide the picks and showels of the much talked about internet gold rush. The telecom equipment industry has been witness to rapid growth in the market and technological innovation. During the last 50 years, Four predominant phases of Regulation, Deregulation, Technology and Consumer orientation can be seen. These phases are not distinct and several of them overlap making the analysis of the industry complex. In this paper an attempt is made to study the extent and nature of competition in the telecom equipment industry. The trends and evolution of the industry in the last five to ten years have been analysed to understand the driving forces of competition and change in the industry. An analysis of the industry structure is then presented to understand the value chain and different segments of the industry. This industry is an oligopoly with 7 to 8 dominant players cornering about 65% share of the total market. The competitive stances of these major players and their organisational moves in the last few years are also analysed. This industry is also witness to a lot of Merger and Acquisition activity and Spin offs off late as well. An analysis of the acquisitions and co-operations entered to by the major players is done to understand the logic behind the high acquisition activity. Lastly the financial performance of the major players and their profit appropriation is studied. The study finds that the even though the major players have not singularly influenced the course of the industry, they have weathered the changes that have swept it. While most of the major players have been slow to recognise disruptions they seem reasonably well poised to address future changes that the industry would witness in the next five years.