Survey of Telecom and Media Convergence

Image from the lead article
Click here to go to The Economist survey (October 12, 2006; Subscription required).

We are seeing convergence of voice and data commumications, of fixed-line and mobile telephone systems, of telecoms and cable media, of telecoms and IT, and of devices (as mobile phones become digital cameras, PDAs become phones, etc.). A recent survey "asked industry executives which converged services and markets they thought were likely to prove most important. The clear leader was voice-data convergence, followed by fixed-mobile convergence and telecoms-media convergence. And these are, indeed, the three areas where convergence is most visible." This survey therefore examined the prospects for convergence by looking at each of these areas in turn.

Of the three, voice-data convergence is clearly the most mature (think of the popularity of Skype, an internet-calling service that is now practically a household name) and provides the strongest evidence of the power of convergence to reshape the industry. Fixed-mobile convergence is less advanced, though the first commercial services are now available in some countries. Telecoms operators' move into the television market is also at an early stage, though there have already been some notable successes.

The survey suggests that convergence will counter intuition and increase diversity. That is, there will be more diversity in the services offered and the devices linked to the converged infrastructure. Since consumers want to chose and only pay for the options they need, and since producers often benefit from bundling services, the market is likely to result in a wide choice to the consumer of different bundles of services provided via different devices.


In the section of the survey titled "Winners and losers" The Economist states:

Figures from the OECD show that household spending on communications, having risen during the 1990s as people signed up for internet access and mobile phones, has been flat since 2000. The same is true of spending on recreation, which includes television, DVD sales and rentals, and cinema-ticket sales (see chart).

As VoIP has driven down the cost of fixed-line telephony, consumers have spent more on mobile phone calls instead, says Rupert Wood of Analysys; but their overall spending on voice calls has stayed roughly constant. So the coming fight between converged operators of various kinds will be over the allocation of existing spending. Nobody seems to be offering anything new that will increase the overall size of the pie.

Comment: I was especially interested in the increase in household spending on eduction as well as on entertainment and communications. The figure illustrates the growth of the information society.

Food and clothing get cheaper. Technology continues to increase productivity. Demand is limited since one only eats so much, and there are limits to what most people are willing to pay for fancy or high quality foods. So too, one only wears one outfit at a time, closets are of limited size, and there are limits to what most people are willing to pay for fancy or high quality clothing.

As incomes continue to increase, and as the communications and information technology continue to give ever more bang for the buck, consumers spend more in information related services. JAD