Telecommunications Services
SIC 4810
NAICS 517
The rapidly changing field of telecommunications services includes local, long distance, and international telephone services, as well as cellular and other mobile phone and paging services. A number of industry firms also transmit cable television services and offer Internet access. See also Cable and Other Pay-Television Services and Internet Services for further coverage of these activities. Many telecoms also have historical ties to communications equipment manufacturing, which is discussed separately in this chapter under Telecommunications Equipment.
The widespread availability of telephone and other telecommunications services in the United States becomes vivid considering that one-third of the world's population has never made a telephone call, according to the International Telecommunication Union (ITU). In 2003, there were approximately 2.5 billion people served by telephones, an average of 40.32 telephone lines per 100 people, with ranges from 8.65 per 100 to 96.28 per 100, depending on the world region. But one need only glance at KMI Corp.'s cybermaps of existing and planned fiber-optics installation to know that the one-third statistic will become outdated in an astonishingly short time. In particular, many humanitarian groups are raising funds to get cell phones into underserved areas in Africa, Asia, and South America for humanitarian purposes.
As late as 1993, fixed lines outnumbered cell phones 12 to one. However, by 2002 the number of cell phones outnumbered fixed telephone lines, and the margins continued to grow wider. Mobile phone usage is highest in developing counties, especially China and India, according to the ITU. Ironically, mobile calls in the United States and Canada were stalled or decreasing as a result of a fee system charging a cost to both callers and receivers on cell calls.
According to the ITU, investment in telecommunications infrastructure was more than US$200 billion in 2000, and by 2003 it had reached approximately US$215 billion. That year, the global telecommunications services industry generated revenues of an estimated US$1.3 trillion. National telephone service represented 33 percent of the world's telecommunications service revenues, while international service accounted for 5 percent and mobile service for 30 percent.
The leading trends in the telephone services industry included privatization of state-owned monopolies, the opening up of telephone service markets to overseas competition, and deregulation. Other significant trends were the continuing rapid growth of the wireless telephone service segment, the expansion of telephone services in developing countries, and the internationalization of the industry through alliances, joint ventures, and investments. Many of these trends stemmed from the World Trade Organization's 1997 telecommunications agreement between its member countries. The agreement established policies for opening up the world's key markets to international participation and increased competition.
Although many companies struggled to gain market share in the 2000s, while the giant conglomerate Verizon prospered, the industry has been marked by the founding and development of the Competitive Local Exchange Carrier (CLEC). CLECs are telephone companies that compete for customers with the existing Incumbent Local Exchange Carrier (ILEC). ILECs include well-known telecommunications companies such as Sprint. A typical CLEC is US LEC, a voice, data and Internet telecommunications carrier that does business in the southeastern and mid-Atlantic regions of the United States. According to the FCC, CLEC lines grew more than 9 percent over a three-year period in the early 2000s, and were expected to continue growing.
Enterprises that provide telephone communication services to the public through their own communication networks, as opposed to companies that lease these lines, are called public telecommunication operators, telephone carriers, or simply telephone companies. For fixed-line telephone service, users are connected to a switched network of cables through individual mainlines. Radiotelephone service providers also operate communications networks; however, the networks are made of radio broadcast towers and sometimes satellite communications stations instead of telephone cables. Fixed-line telephone services may also use satellites for global transmission.
Telephone communication services were traditionally provided by a single monopoly in each country, often a state-owned enterprise or a government agency. In the latter case, national telephone services are often provided by the same organization that provides postal and telegraph services. This is because telephone communications have historically been considered a public service utility requiring government involvement to ensure widespread distribution and compatibility of service and equipment. Even in countries with more than one telephone company, the industry tends to be heavily regulated and competition may be restricted. The heavy involvement of national governments in the telephone industry has produced a market structure that, until recently, has been very national in character, although the industry does provide international services in the form of international calling. Bilateral treaties govern the sharing of costs for transmitting international phone calls.
Within a given country, different categories of service may be provided by the same company, or the industry may be regulated so that companies may only operate within certain categories of service. These services include local, domestic long distance, international long distance, local mobile telephone communications, national mobile communications, and specialized services such as leased lines. Certain sectors of the industry may be open to competition while others may be handled by a single monopoly. In general, mobile communications tend to be the most open to competition, while local telephone service tends to be the least.
Mobile communication services, which use radio frequencies for transmission, include cellular telephone, paging, personal communications services (PCS), specialized mobile radio, satellite communications, and data services. Paging services, which use cheaper and simpler technology, account for the greatest number of mobile communication subscribers, whereas cellular telephone service is the category that generates the most revenues. Cellular telepho
ne service, developed in the 1960s and introduced in the 1980s, differs from traditional radiotelephone services by using a network of low-power transceivers, each covering its own area, or cell, which ranges from two to 10 miles. Mobile telephone services are provided by both the major public telecommunication operators and by smaller, specialized companies.
In the 1990s, the structure of the worldwide telecommunications industry began to undergo a rapid transformation. In both industrialized and developing countries, various categories of telephone services began to be privatized, deregulated, and opened up for competition. The countries with the most open competition as of 1998 were the United Kingdom, the United States, Japan, Sweden, Finland, and New Zealand. However, despite the easing of restrictions, telephone communication remains one of the most regulated industries.
The International Telecommunication Union (ITU) serves as an international regulatory body for the global telecommunications services industry. The union fosters collaboration among members—governments and private sector companies—for the establishment of consistent rates and service standards and allocates radio frequencies, among other activities. Moreover, as a division of the United Nations, the ITU also strives to bring telecommunications service to developing countries. To this end, the ITU monitors the progress of telephone service penetration in these countries and promotes increased international involvement in resolving this problem.
In February 1997, the World Trade Organization (WTO) announced that its 72 member countries had reached an agreement after several years of negotiations. The participating countries represented about 90 percent of the world's overall telecommunications market. The agreement called for members to open up their markets to foreign competition and to establish regulations to promote and ensure fair telecommunications service trade. The WTO expected this agreement would result in lower prices, better service, more advanced technology, and greater investment, and announced that the agreement would take effect in February 1998 (although member countries had differing implementation schedules). The accord includes provisions for voice telephony, data transmission, facsimile transmission, private leased circuit services, satellite communications, and mobile communications. The agreement came to be known as the Information Technology Agreement (ITA). The ITA, according to the U.S. Department of Commerce, "is a plurilateral trade agreement that requires participants to eliminate their tariffs on a specific list of information technology (IT) products." Examples are analytical...
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