Voyevodins' Library _ "International Business: Competing in the Global Marketplace" / Charles W.L. Hill ... Chapter 1 ... absolute advantage, ad valorem tariff, administrative trade policies, Andean Pact, antidumping policies, antidumping regulations, arbitrage, ASEAN (Association of South East Asian Nations), balance-of-payments accounts, banking crisis, barriers to entry, barter, basic research centers, bilateral netting, bill of exchange, bill of lading (or draft), Bretton Woods, bureaucratic controls, capital account, capital controls, CARICOM, caste system, centralized depository, channel length, civil law system, class consciousness, class system, collectivism, COMECON, command economy, common law system, common market, communist totalitarianism, communists, comparative advantage, competition policy, constant returns to specialization, controlling interest, copyright, core competence, counterpurchase, countertrade, cross-cultural literacy, cross-licensing agreement, cultural controls, culture, currency board, currency crisis Voevodin's Library: absolute advantage, ad valorem tariff, administrative trade policies, Andean Pact, antidumping policies, antidumping regulations, arbitrage, ASEAN (Association of South East Asian Nations), balance-of-payments accounts, banking crisis, barriers to entry, barter, basic research centers, bilateral netting, bill of exchange, bill of lading (or draft), Bretton Woods, bureaucratic controls, capital account, capital controls, CARICOM, caste system, centralized depository, channel length, civil law system, class consciousness, class system, collectivism, COMECON, command economy, common law system, common market, communist totalitarianism, communists, comparative advantage, competition policy, constant returns to specialization, controlling interest, copyright, core competence, counterpurchase, countertrade, cross-cultural literacy, cross-licensing agreement, cultural controls, culture, currency board, currency crisis



 Voyevodins' Library ... Main page    "International Business: Competing in the Global Marketplace" / Charles W.L. Hill ... Contents




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Chapter Outline

The Emerging Global
Telecommunications Industry

A generation ago, telecommunications markets around the world shared many characteristics. In most nations, there was a dominant telecommunications provider--AT&T in the United States, British Telecom in Britain, Deutsche Telekom in Germany, NTT in Japan, Telebras in Brazil, and so on. The provider was often state-owned, and even when it wasn't, its operations were tightly regulated by the state. Cross-border competition between telecommunications providers was all but nonexistent. Typically, regulations prohibited foreign firms from entering a country's telecommunications market and competing head-to-head with the domestic carrier. Most of the traffic carried by telecommunications firms was voice traffic, almost all of it was carried over copper wires, and most telecommunications firms charged their customers a hefty premium to make long-distance and international calls.

A generation later, the landscape is radically different. Telecommunications markets around the world have been deregulated. This has allowed new competitors to emerge and compete with the dominant provider. State-owned monopolies have been privatized, including British Telecom and Deutsche Telekom. Several dominant telecommunications firms, state-owned or otherwise, have been broken up into smaller companies. For example, in 1998 Brazil's state-owned telecommunications monopoly, Telebras, was privatized and broken up into 12 smaller companies that will be allowed to compete with each other.

New wireless technologies have facilitated the emergence of new competitors, such as Orange and Vodfone in Britain, which now compete head-to-head with the former state monopoly, British Telecom. Thanks to the Internet, the volume of data traffic (e.g., Web graphics) is now growing much more rapidly than that of voice traffic. By 2005, the volume of data traffic may triple that of voice. Much of this data traffic is being transmitted over new digital networks that utilize fiber optics, Internet protocols, digital switches, and photons to send data around the world at the speed of light. Telecommunications firms are investing billions in digital networks to handle this traffic.

To cap it all, under a 1997 agreement brokered by the World Trade Organization, 68 countries accounting for more than 90 percent of the world's telecommunications revenues have agreed to open their telecommunications markets to foreign competition and to abide by common rules for fair competition in telecommunications. Most of the world's biggest markets, including the United States, European Union, and Japan, were fully liberalized and open to foreign competition on January 1, 1998.

The consequences of these changes are becoming apparent. A global market for telecommunications services is rapidly emerging. Telecommunications companies are starting to penetrate each other's markets. Prices are falling, both in the international market, where prices have long been kept artificially high by a lack of competition, and in the wireless market, which is rapidly becoming price competitive with traditional wire-line telecommunications services. Estimates from the World Trade Organization suggest that, following the deal that went into effect in 1998, the price for international telephone calls should fall 80 percent by 2001 as competition increases, saving consumers $1,000 billion. Soon it will cost no more to place a call halfway around the world than next door.

As competition intensifies, national telecommunications companies are entering into marketing alliances and joint ventures with each other to offer multinational companies a single global telecommunications provider for all their international voice and data needs. For example, in July 1998, AT&T and British Telecom announced they would merge most of their international operations into a jointly owned company that will have $10 billion in revenues. The venture will focus on serving the global telecommunications needs of multinational corporations, enabling workers in Manhattan to communicate as easily with computer systems in New Delhi, say, as with colleagues in New Jersey. AT&T and British Telecom estimate the market for providing international communications services to large and medium-sized business customers will expand from $36 billion in 1998 to $180 billion in 2007. Other companies that are working together on a global basis include MCI-WorldCom, the number two long-distance carrier in the United States, and Telefonica of Spain, which is also Latin America's biggest telecommunications carrier. The Sprint Corporation, the number three long-distance carrier in the United States, is partly owned by Deutsche Telekom and France Telecom. This trio is positioning itself to compete with the Worldcom/Telefonica and AT&T/BT ventures to gain the business of multinational customers in the brave new world of global telecommunications.

http://www.att.com

Source: A. Kupfer, "The Big Switch," Fortune, October 13, 1997, p. 105 - 16; S. Schiesel, "AT&T and British Telecom Merge Overseas Operations," New York Times, July 27, 1998, p. A1; and F. Cairncross, The Death of Distance (Boston: Harvard Business School Press, 1997).

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