With competition increasing and voice revenues declining, demand for broadband connections and the related network capacity needs will be the catalysts for telecommunications services and equipment revenue growth, according to a new report released by Standard & Poor's Equity Research. High penetration rates in developed markets, like the U.S. and Europe, are limiting new subscriber opportunities, so wireline telecommunications companies are looking to revamp network offerings with innovative technologies, such as fiber lines, to enhance service delivery. Service providers and equipment suppliers also are looking at emerging markets, including Latin America and Asia, to increase market share through improved connectivity.
"There are really two inter-connected stories here -- the telecommunications service providers and the telecommunications equipment suppliers -- that are playing out on a global scale" notes Todd Rosenbluth, Group Head for U.S. Telecommunications Services, Standard & Poor's Equity Research, and one of the study's authors. "Facing a drop in their traditional revenue base, it's no surprise to see many of the companies in the areas we examined expanding their horizons internationally and into new products."
In their view, service providers in each region may face unique challenges, such as regulatory discrepancies, diverse competition and variations in infrastructure. S&P contends that communications equipment providers such as Corning and Netgear have become the arms dealers in the competitive telecom world. Despite high pricing pressure, they think the vendors will largely emerge victorious in the triple- play war.
"While there's still a considerable amount of opportunity in broadband, particularly when bundled with services for video, it's not endless," continues Rosenbluth. "In our view, companies on both sides of the industry, including AT&T and Telefonica, will need to continue investing in next-generation offerings to increase bandwidth and deliver advanced IPTV, voice and high-speed Internet bundles. While the initial capital outlay may be substantial, the long-term effect of lowered operating expenses and increased competitiveness may boost shareholder returns."
Drawing on the insights of S&P's global equity research staff, the study looks at the wireline telecommunications industry on a worldwide basis.
Posted to the site on 17th January 2008
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