The $1 trillion global telecommunications megamarket of 2000 is in the midst of structural changes brought about by sharply falling telecommunication costs, privatization, the Internet with its related technologies, and a web of dynamic new business relationships. In the future, several technologies and markets will double in size in relatively short periods - ranging from one-half to seven years. Barriers to capitalizing on this growth include government regulations and local monopolies, competing technologies, compliance with costly Year 2000 programs, and fierce competition. As a result, global telecom alliances are forming with varying degrees of success. In the future, partners will change, new alliances will form, and constellations of alliances will compete. "Converging" alliances are more likely to create value for partners than "pure play" alliances.

TELECOMMUNICATIONS OUTLOOK

By the year 2000, the global telecommunications market will grow to about $1 trillion from $700 billion of annual revenues generated during 1997. The United States and Europe will account for more than 50% of the total, but the Latin American and Asia and Pacific markets will almost double in size. By the end of this decade, an estimated 1.4 billion telephones will be in operation, of which about one-third will be wireless. Beyond 2000, significant uncertainty exists about the market size, market dynamics, and which companies and technologies will be the winners and losers. A number of global trends apparently influence how telecommunication megamarkets will unfold in the future.

Falling telecoms costs	Telecommunication costs have already declined from $50.00 in 1955 to less than $1.00 today for a three minute international phone conversation. The marginal cost of sending the same information over Internet Email is less than 20?. The U.S. Federal Communications Commission has stated its intent to cut international rates by an additional 80% in the next five years. Fiber optics, digital transmissions, and satellite communications will push prices lower. Some 60 nation members of the World Trade Organization agree that international telecommunication prices will decline between 30% and 50% of their current levels by 2002. Some analysts believe that large firms will be able to buy long-distance traffic at a cost of less than 1? per minute within four years. Within ten years, telecom prices will be charged on the basis of quality or bandwidth because distance between users or the time duration of a call will be irrelevant.
Privatization	International markets are opening, slowly. Telecom monopolies are likely to permit new entrants into their markets with newer and cheaper services. Telecom privatizations amounted to almost $160 billion between 1984 and 1996, most of which were in the Asia-Pacific and Western Europe regions. In January 1998, the World Trade Agreement fired the starting gun for 60 nations to open up their telecom markets. A number of nations are relatively open to outside competition in long-distance and wireless markets, but most are reluctant to open their local voice markets. The United States and Japan have opened the doors to competition on domestic long-distance telephony. Britain, Australia, Finland, and Hong Kong are relatively open in local voice markets. Future telecom privatizations and public offerings will include Deutsche Telecom; the German government will sell an additional 23% of its 74% stake in the firm for an estimated $12 billion in 1998. France Telecom, Japan's NTT, and Taiwan's Chung Hwa Teleco are among the firms that will continue to privatize in the next two years. Privatized telecom markets, since the early 1990s, have generated more jobs and created more traffic growth than have monopoly telecom markets, according to OECD studies.
The Internet and related technologies	Today, some 30 million terminals are connected to the Internet worldwide. By the year 2001, an estimated 200 million computers and terminals will be linked to it. Almost every new computer sold today has an Internet capability. In the future, most televisions will also have some type of Internet capability. Some analysts believe that in the future, all types of applications - such as automobiles, houses, furnaces, refrigerators, and even wearable computers - will be linked to the Internet and its related technologies. Today, traditional telecom services - such as telephony, facsimile, Email, audio and video files - are sent over the Internet at lower cost. Many of these services lack the quality and reliability of standard telecommunications, but the demand for these services appears high and will boost R&D spending for improvements. Major corporations are reluctant to put mission-critical traffic on the public Internet, but Dell and IBM are active in private intranets. General Electric buys $1 billion a year from its 1,400 suppliers through its Web site, Trading Process Network. The table below shows the number of years for each of selected markets for some of these technologies to double in size.

SELECTED TELECOMMUNICATIONS MARKETS AND TECHNOLOGIES

Market opportunities are influenced by shifts to new technologies and by the willingness of some nations to apply them. Future changes in several telecommunication markets are already visible.

MARKET DYNAMICS AND CHALLENGES

The transformation from physical trade to voice telecom trade and now to information trade is evident. A country's future growth is driven by technological advances and how effectively it uses them. For example, compare the nations that trade in physical goods, in (mostly voice) telecom services, and in information data. The table below shows the top ten nations trading with the United States shown below in each category. Note that Japan's voice telecom and information trade rank lower than its physical trade with the United States. In a comparison of the top cross-border telecom routes among countries, Japan is not even in the top 30 routes. Japan has delayed its privatization program until recently. Japan's telecommunication companies are not currently aligned with one of the major global telecom alliances. Italy, China, Taiwan, South Korea, Singapore, Hong Kong, and Mexico are in the top ten physical trading nations, but they don't appear on the top ten Info Trade list. Australia's information business is booming and it ranks number #2.

EVOLUTION OF TOP TEN U.S. TRADING PARTNERS TO NEW TECHNOLOGIES

Another market change at present is the reversal of voice and data in global traffic. At present, voice telecommunications account for more than 80% of international traffic; by the year 2010, data will constitute 80% of traffic and voice the remaining 20% of the total. As a result, voice traffic will go over data networks. Data networks such as the Internet are critical drivers of future growth of the global telecommunications industry. However, important barriers must be considered in understanding how fast the telecommunications industry will unfold in the future.

Some barriers that need to be overcome include:

• Local monopolies and government regulations. In many nations, local voice networks, owned by the government, are reluctant to open their doors to competition.
• Competing technologies. It is not clear to many multinational corporations which of the many competing technologies will provide interoperability, a standard that facilitates smooth information transfer among firms.
• Year 2000 compliance. Some analysts estimate that Year 2000 compliance will defer a substantial portion (up to 20% of total global resources) of important telecom and computer projects until 2003.
• Alignment. A number of mergers and alliances have formed, but progress has been slow, in part because of competing products, lack of sufficient global reach, and the difficulty in controlling and managing services in many nations.

To develop a strategy that might overcome some of the barriers and position a firm's resources effectively, a segmentation process developed. Three steps are: create information, move information, and use information. A key finding (see "The Information Industry, A New Portrait," in Business Economics, July 1989) was that data networks, private networks, network intelligence, and network applications were the high-growth markets of the future. One strategy was to form alliances to capture the high growth of these markets. A problem was that many of the alliances became mired in conflicting goals, products, and skills.

A close examination of these alliances reveals that most were "pure play" alliances - that is, ventures in which the partners offered unlike but closely related products, technologies, and markets. These markets are usually in the same create, move, or use category. The potential for conflict exists in pure play alliances. For example, British Telecom (BT) offers some global services under the name BT and others under the name of Concert. Concert is a pure play alliance between BT and MCI.

Evidence is growing that a better approach may be a "converging" alliance, in which partners offer different products, technologies, and markets. Converging alliances appear to create more value for partners and to reduce potential conflicts. These alliances are usually in two or more segments of create, move, or use information.

The segmentation map shows global telecommunications ("Move" information) in the context of the global information industry. The overall information marketplace will be more than $3 trillion in the year 2000. High-growth information and telecom markets are at the top; low-growth markets are at the bottom of the chart.

THE FUTURE OF TELECOMMUNICATIONS IN GLOBAL INFORMATION MARKETS

The segmentation consists of three categories in which firms provide content (create information), communications (move information), and applications (use information). The global market for three segments will be more than $3 trillion in the year 2000. The communications segment (ranging from data networks to television and local telephony) will account for $1 trillion. Some 50 industries are represented in the segmentation of which 35 are shown in the figure. One purpose of the map is to show how firms develop connectivity through alliances. A firm has a footprint in the major markets it serves.

The information industry map provides a broader framework to show how firms interact in the content, communications and applications sectors. The map illustrates how and where some of the telecom participants will form alliances in the future, especially focusing on new high-growth markets.

ROLE OF NEW ALLIANCES

Firms are forming alliances today as they pursue connections to global information networks. More than 90% of Fortune 1000 firms use alliances as a key strategy. Corporate clarity is one reason for the growth in alliances. Corporate clarity is the need to focus on a firm's capabilities and spin off, divest, or downsize divisions that diffuse and confuse a company's growth path. In the past five years, demergers have grown to two-thirds as large as merger activity. The Economist states that 1998 will be the year when more spin-offs occur than mergers.

Focused firms (speedboats) create more value than many large ones (cruisers). Experienced alliance managers find that successful partners offer new skills, technologies, or products, many of which are unrelated to those of current partners, but add an important focused capability that the alliance needs. Partners in these alliances are usually in converging markets.

Recent examples of converging markets include cellular telephones (radio and telephony), the Internet (packet switching and fiber-optics cables), computerized reservation systems (databases and private networks), information gateways (Internet browsers and key Web sites), networking copiers (photocopy technology and data networks). Apparently, far too many pure play alliances run aground, and far too few converging alliances leverage the growth opportunities of new markets and the high energy of spun-off organizations. Here are a few graphical illustrations of pure play and converging alliances.

Pure Plays	The Concert alliance between MCI Telecommunications and British Telecommunications (BT) was formed in 1993. BT invested $4.3 billion for a 23% stake in MCI. BT has 44 alliances in 24 countries, almost all of which are pure play, i.e., they involve other telecommunication service and equipment firms. MCI is the U.S's second largest long distance operator (after AT&T). The recent decision by WorldCom to acquire MCI will change the alliance relationship. WorldCom will be the second largest long distance carrier, after the pending merger, in the United States. Today, it provides local telephone service, Internet access, and international communications through its own fiber-optic network. The major pure play telecommunication alliances include: Global One (Deutsche Telekom, France Telecom, and Sprint) with 16.3% market share of 60 billion minutes of international traffic in 1996; AT&T Unisource (AT&T with 16 telecom partners) with 20.7% market share; Concert (BT and MCI) with 12.0% market share; and the Cable and Wireless consortium with 6.3% market share.
Multiple Alliances That Converge	Microsoft invested $1 billion for a 11.5% share in an alliance with Comcast, the fourth largest U.S. cable operator, to support cable modem entry into telephony and data access to homes. Microsoft has an alliance with GTE, which is the third largest local telephone provider. GTE provides long distance telephony in all 50 states. Microsoft's chairman, Bill Gates, invested $10 million in Teledesic, a low-earth orbit satellite communications network. Teledesic's partners also include McCaw and the Boeing Company. Microsoft is forming a new alliance with Intel and Compaq in a communications consortium with GTE and five Regional Bell Operating Companies to provide high speed access to the Internet using the asymmetric digital subscriber lines standard. The technology delivers data at speeds faster than cable modems through standard copper wire networks and digital PC modems. Converging alliances are formed when participating technologies or markets are on a converging path.
Converging alliances are likely to grow in the future as corporations that need telecommunications products, but do not own the technology or have the telecom expertise in order to expand into global markets more effectively.

BUSINESS IMPLICATIONS OF GLOBAL TELECOMMUNICATIONS AND ALLIANCES.

In the future, businesses will transform into a web of new relationships through alliances and knowledge networks. A number of implications of the brave new world of telecommunications will be important to businesses and individuals in the future. Some of them include:

• Desk-less offices in which individuals will use wireless communications, mobile databases, and Internet technology to spend less time in the "office" and more time with customers and vendors.
• Convergence of manufacturing and services that will increase the productivity of both. Boeing states that it developed its B 777 aircraft using more than 50% information and communication services. Boeing calculates it saved about one millio person hours in the process.
• Outsourcing major telecommunications services to groups that specialize in specific telecom niches that are cost-effective. A recent example is the $2 billion outsourcing agreement between J. P. Morgan and Computer Sciences, Corp.
• Review of telecom contracts to capture the benefit of lower costs by establishing special pricing contract provisions with telecom vendors.
• Businesses that will benefit from purchasing through the Internet, because of large volumes, pricing comparisons, and knowledge of vendors.
• Global communications that will become easier through freephones in which individuals will have one number that can be accessed via satellite in different nations and by numerous telecom carriers. In some cases, such as Ford in Europe, area codes have been eliminated.
• Virtual private networks (VPN) that will become important ways for companies to keep costs low and maintain contact with customers and staff. VPN gives the impression of being a private network but it is managed by a global alliance.
• Companies seeking to capitalize on advances in telecommunications. These companies will look for partners in converging markets that speed up access to new customers, use new technologies, and evaluate new markets.

REFERENCES

Dadd, Mark C., The Outlook for the Telecommunications Industry and the Implications for the Economy and Business, Business Economics, January 1998 Economist Surveys, September 13, 1997 and September 26, 1996

Gartner Group Report, The Future of Information Technology, September 1997.

Global Trends Reports, Global Trends and Strategic Alliances, 1998, Marcar Management Institute of America, Inc.

International Telecommunications Union, Direction of Traffic, 1996

NABE Annual Meeting, Internet Workshop for Economists and Investors, Proceedings 1995.
Available on NABE Silicon Valley Web page http://www.marcar.com/svrt/

Raphael, David E., The Changing Structure of the Global Information Industry, SRI International Report 807, Winter 1992; The Information Industry, A New Portrait, Business Economics July 1989

U.S. Department of Commerce, International Trade Administration, U.S. Global Trade Outlook 1995 - 2000, Washington, D.C.

1996 and 1997 Annual Reports, 10K reports of firms identified in this paper