Telecommunication Services
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Industry Overview
In the US, about 11,000 companies provide telecommunication services, with total annual revenue over $400 billion. Large companies include AT&T, Verizon, and Comcast. The industry includes 3,000 wireline carriers (annual revenues about $240 billion); 3,000 wireless companies ($100 billion); 2,000 cable companies ($60 billion); and satellite companies and telecommunication resellers. The industry is highly concentrated: the 50 largest companies hold 90 percent of the market.
Competitive Landscape
Demand is driven by technological innovation and by growth in business activity. The profitability of individual companies depends on efficient operations and good marketing. Large companies have big economies of scale in providing a highly automated service to large numbers of customers, and have the financial resources required to build and maintain a large network. Smaller companies can compete effectively only in small markets or by providing specialty services. Because of the large degree of automation, average revenue per employee is a high $300,000.
Products, Operations & Technology
The industry provides mainly telephone, TV distribution, and data transmission services (such as the Internet). Companies provide these services through networks of wires, computers, transmitters, and receivers. In the voice and data segments, companies merely provide a channel over which customers transmit their own information. In the TV distribution segment, companies also supply the content transmitted to the customer.
The operations of telecom service providers revolve around building, maintaining, and operating networks to reach customers. Networks can be built by physically laying wires, building transmission towers, and interconnecting switching centers. Networks can also be assembled by buying existing facilities or leasing capacity on another company's network. Computers are the heart of all telecom facilities. Equipment is bought from large manufacturers like Cisco, Lucent, Motorola, and Nortel. Daily operations consist mainly of field maintenance work and tending interconnected computer systems.
Wireline Telephone:
The modern US telephone industry is an outgrowth of the monopoly Bell telephone system. Rapid changes followed the 1982 AT&T Divestiture Decree, which broke the AT&T monopoly into regional bell operating companies (RBOCs), manufacturing operations, and a long-distance service. A number of the RBOCs created then have since consolidated into large regional companies.
The wireline (as opposed to wireless) telephone network in the US consists of wires and switches that carry and route signals to the correct receiver, and gateways that allow wireless services to connect to the wireline network. Most local telephone traffic is still sent via a process called circuit-switching, which requires that an end-to-end communications channel be opened and used for the duration of each telephone call. Data traffic (including Internet traffic) and many long distance calls are sent via more-efficient packet-switching, which cuts a stream of information into little pieces, commingles it with other traffic sent over the same channel, and reassembles it at the receiving end.
The telephone industry uses a large and sometimes confusing variety of signaling systems and communication conventions ("protocols"). The current signaling system used to set up a phone call is called Signaling System 7 (SS7). Integrated systems digital network (ISDN) and digital subscriber loop (xDSL) are protocols that allow high-speed communication over local access wires. Asynchronous transfer mode (ATM) can send mixed voice, data, and video information. Frame relay switching is often used for sending data between users.
Wireless Telephone:
Wireless phone networks consist of handsets (cell phones, which are radio transmitters/receivers), a network of radio antennas and base stations that can send and receive signals within a local area (a cell), and a network of switching stations that connect the cells with each other and with the wireline telephone network. Computers monitor the signal from a caller and "hand-off" the call from one cell to an adjacent cell as a caller moves.
Wireless providers sell customized phones and operate networks of antennas, base stations, and switching centers. Each wireless network operates in a particular wavelength frequency range (the "spectrum"). Licenses to use spectrum are issued by the government and can be bought and sold by holders. Phones that operate at a higher frequency have greater signal capacity (needed to transmit high-quality sound, photos, or data) but lower signal strength, and therefore require a more concentrated network of antennas. Wireless companies use one of several incompatible signal processing systems. The most common wireless signal processing technologies are TDMA, CDMA, and GSM. Most wireless companies operate regionally but interconnect with other companies that use the same technology, allowing customers to have roaming service outside their local area.
Cable Systems:
Unlike wireline or wireless telephone companies that can send only a fairly small amount of information through their copper wires and phones, cable companies can send a large amount of information through the special coaxial cable wires that make up their networks. First formed to transmit regular TV signals outside regular broadcast areas, cable companies have made large investments in facilities and equipment in recent years to provide additional services. They now use their high-capacity wires to simultaneously transmit hundreds of TV and radio channels, Internet access, telephone, HDTV, and on-demand movies.
In addition to operating a network that carries signals, cable companies provide TV and movie "content." Companies acquire content from large media companies like Disney, Fox, and Viacom or from independent producers, much in the same way that local TV stations operate. Cable companies may buy transmission rights to entire cable channels like MTV, CNN, HBO, and ESPN, or to individual productions. Many cable companies also produce some of their own content. Large content providers may require that cable companies take an entire package of channels.
Other Systems:
Paging systems basically consist of one-way radio transmitters that receive an activation signal from the wireline phone system and signal a mobile receiving unit. The handsets for satellite systems must be able to communicate with a system of satellites, requiring greater power than cell phones. Satellite TV and radio systems send one-way signals from satellites in "geo-synchronous" orbit (they stay over the same spot).
The Internet is a computer-to-computer communication system that uses many of the same structural elements as the telephone system, such as local cable or phone access lines, but uses packet-switching signal processing and special computer switches called routers. Its signaling system is called TCP/IP or Internet Protocol.
Technology:
Computers and computer chips are at the center of all telecom systems. To route traffic, wireline telephone companies use special computers called Class 5 switches; Internet networks use computers called routers. Wireless phones use special computer chips for transmitting and receiving signals. Wireline operators largely use high-capacity fiber optic cable for long distance transmission and are starting to bring fiber optic cable directly to customer locations. All telecom providers use computers to monitor traffic and provide detailed billing statements to customers.