The global telecommunications industry has undergone sea changes since the invention of the world’s first ‘talking telegraph’ by the legendary Alexander Graham Bell in 1875. The industry, which for long, remained synonymous with AT&T, the company which Bell founded a few years after he received patent for his invention in 1876, has become a worldwide phenomena today, touching the lives of billions of people worldwide. Thanks to rapid growth in the subscriber base fueled by the advent of mobile telephony, telecommunications is a trillion dollar industry today.
Rapid technological disruptions and changing consumer preferences have seen the global telecommunications industry undergo a sea change in recent times. First, it was the advent of mobile phones which shook the traditional wireline carriers like AT&T in the US, BT in the UK and BSNL in India. Consumers’ shifting to mobile phones threatened these companies bread-and-butter, core, landline business. If that was not enough, cable telephony emergence posed further challenge to carriers; though this phenomenon was largely confined to the US markets alone.
However, as it has been proved now, all these were precursors to a bigger threat: Voice over Internet Protocol (VoIP) or Internet telephony. The advent of nimble-footed firms like Skype, which almost offer VoIP for a fraction of what traditional carriers charge (in fact, some like Skype offer it for free), has been threatening even the very survival of these traditional carriers. No surprise then that faced with these challenges, many telcos are trying to adapt to the changing telecommunications landscape.
Major fallout of this has been the consolidation in the industry, as companies want to gain size and scale to augment their R&D effort. Further, product innovation has now become an integral component of a telco’s strategy. Of the other factors, a significant one that has had an impact on the industry is the ongoing deregulation and new policy in several regions of the world, including India. In fact, in India, deregulation has been a major force in revolutionizing telecom penetration in the country in the wake of New Telecom Policy 1999, which allowed private participation in the sector and helped break the monopoly of state-owned carriers BSNL and MTNL. This completely changed the telecom landscape in the country.
History of Telecommunications
The history of telecommunications traces its roots to as far back as over a century ago when Alexander Graham Bell patented the telephone, an “apparatus for transmitting vocal or other sounds telegraphically”4 after experimenting with many primitive sound transmitters and receivers. In July 1875, Bell famously said to his assistant, who was sitting in the next room, “Mr. Watson—come here—I want to see you,” which describes the first successful experiment with the telephone. Bell was granted a patent on his telephone on March 6, 1876.5. Since then, the telephone—or rather the telephone system—has revolutionized the way we live, socialize and do business, but its ultimate potential was less than apparent to 19th century society.
Revenue Growth
A century later, however, his invention ‘a talking telegraph’ (as telephone was also referred to then) helped create what is a trillion dollar industry today and perhaps the most competitive one on the earth. “In fact, the technology was so radical that even the president of Western Union, William Orton, had difficulty understanding telephone’s extraordinary possibility.” Legend is that Orton had turned down the offer to buy Bell’s patents for $100,000, which he felt was nothing more than an electric toy. However, the telephone was destined to become one of the greatest discoveries mankind ever made. Two months later on May 10, 1876, the city of Philadelphia in America hosted the “International Exhibition of Arts, Manufactures and Products of the Soil and Mine,” to celebrate 100 years of American cultural and industrial progress as well as to showcase America as a new industrial world power. “The United States of America was 100 years old. The country needed a party...a big one that could highlight the best and brightest of American (and international) ingenuity.”
Some 30,000 exhibits from different parts of the world were on display, which also included Bell’s newly patented device called ‘telephone.’ Over more than a month into the exhibition, however, hardly anyone showed interest in Bell’s new device. But it was all set to change. On the fateful day of June 25, 1876, a team of distinguished judges have visited the exhibition. In the team was also present Emperor Dom Pedro de Alcantara of Brazil, who knew Bell. The judges had almost decided to drop for the day, when the Emperor cited Bell and enquired about him that Bell invited the former to visit his stall as well. The emperor was amazed to see the instrument and awestruck he exclaimed, “It talks!” Sir William Thompson, the greatest electrical scientist at that time in the world, who was standing beside the Emperor, also took the trial of Bell’s device and uttered, “It is the greatest marvel hitherto achieved by the electric telegraph!”
“When Sir William Thompson spoke, the world believed. “I went to bed the night before,’ said Bell, ‘an unknown man, and awoke to find myself famous. I owe it to Sir William Thompson, back of him to Dom Pedro, and back of him to the deaf-mutes of Boston.” And the rest is history. “At first telephones were seen as a fad that were more for entertainment purposes than commerce, until newspapers and banks began grudgingly using them to convey information quickly by virtue of free phone installations.”
However, as the words spread the telephone was beginning to make its presence felt. Soon phone exchanges were set up in most major cities of the US as demand grew. In 1877, Bell along with his two financiers, Gardiner Hubbard and Thomas Sanders, went on to found the famous Bell Telephone Company to exploit the invention. A year later, the first telephone exchange was set up under license from Bell Telephone. Soon, Bell began to issue licenses to many more exchanges.
In the next couple of years telephone exchanges became a common sight in most of the towns and cities of the country. ‘The first phones that were installed were “private lines” that connected only two telephones. Bell established commercial telephone service in 1877. By June 30, 1887 there were 230 phones installed; in July, there were 750; and in August there were 1,300.’ In 1882, Bell acquired the Western Electric Company. As a consequent, Bell got to own most of its licensees. Later, the two enterprises came to be known as the Bell System.
The American Telephone and Telegraph Company (AT&T) was incorporated on March 3, 1885 as a wholly-owned subsidiary of American Bell. Four years later in December 1899, AT&T acquired American Bell, and became the parent company of the Bell System. ‘The history of AT&T is in large measure in the history of the telephone in the United States.’ The company’s history, however, is full of stories of bitter fights with first other early inventors like Elisha Gray (who lost out patent war to Graham Bell) and later in the early twentieth century with other telephone companies which were wary of AT&T’s monopolistic ways. As allegations about the telecom giant’s monopoly rose, the government and AT&T entered into an agreement in 1913, as a result of which AT&T agreed to give non-competing independent telephone companies access to its network. AT&T nevertheless all along enjoyed a near monopoly.
But by 1974, AT&T was again facing antitrust suit. About 100 years later after it was formed, AT&T was broken up into eight distinct companies. The divestiture took place on January 1, 1984, and the Bell System was dead. Seven new companies were carved out of it which were famously called Baby Bells namely, Pacific Bell, Ameritech, Southwestern Bell, US West, Bell Atlantic, BellSouth and Nynex. Collectively these Baby Bells were also called the Regional Bell Operating Companies or RBOCs. As a result, AT&T got out of the local phones service leaving the market to be served by the new formed Baby Bells.
The dissolution of AT&T also meant that people could now own their telephones and freely hook up peripheral devices such as faxes and modems. In 2005, SBC Communications purchased AT&T Corp., thus reuniting the venerable phone company with three of its spinoffs (SBC was composed of Southwestern Bell, Pacific Telesis, and Ameritech). The SBC chose to rechristen the merged entity as AT&T Inc. A year later, AT&T acquired BellSouth, another of the Baby Bells. As a result of the series of mergers and acquisitions, none of the Baby Bells exist in their original avatar today.
Journey of the ‘Baby Bells’
Ameritech — (acquired by SBC in 1999)
Bell Atlantic — (acquired GTE in 2000 and changed its name to Verizon)
BellSouth — (acquired by AT&T Inc. in 2006)
NYNEX — (acquired by Bell Atlantic in 1996)
Pacific Telesis — (acquired by SBC in 1997)
Southwestern Bell — (changed its name to SBC in 1995; acquired AT&T Corp. in 2005 and changed
its name to AT&T Inc.)
US West — (acquired by Qwest in 2000)
Source: http://en.wikipedia.org/wiki/Regional_Bell_Operating_Company
In the meanwhile, vast improvements in technology were taking place. Switchboard came into existence in the 1880s. The development of metallic circuits made it possible to make long distance calls. In those days until 1891, calls had to be routed through exchange operators. However, thanks to a Kansas City businessman, who pioneered the concept of direct dial system.
Around the middle of the 20th century, twisted copper wires were replaced by coaxial cables in the 1940s, which reduced interference and hence improved voice quality besides increasing the calling capacity that helped in further expansion of the telephone system. In the meanwhile, technological advancements also grew in the wake of the two World Wars which saw heavy spending by the US defense department. The first transatlantic call using Radio telephone links was made in 1927 between England and the US. ‘Innovations resulting from war-time experiments included Bell Telephone’s first mobile telephone system, which connected moving vehicles to landlines via radio. Surprisingly, this was as early as 1946, a year that also saw the development of coaxial cables for major transmission improvements with less interference.
The 1950s saw the advent of the microwave stations (based on radar technology) that could carry almost 20,000 phone conversations; this technology is still in the vogue today, however, it is used mostly for broadcasting television signals. The period also saw the emergence of a new device called Pager, which soon became ubiquitous thanks to the utility they offered and were easy to carry.
Invented by Multitone Electronics in 1956, pagers were initially aimed at alerting doctors during emergencies. Pagers are mainly categorized as: on-site paging systems, used in hospitals to send urgent information to doctors; and, wide area paging, which in addition to offering features as by on-site paging, offers the radio coverage across wider areas such as city, and even country. Paging industry grew rapidly and by 1993 had 19 million subscribers in the US alone. However, in the 90s as mobile phones became more popular, it dealt a body blow to the paging industry. Pagers are still in use today in places where mobile phones typically cannot reach users, and also in places where the operation of the radio transmitters contained in mobile phones is problematic or prohibited.
In the 1960s, Bell Telephone switched over to longer, all numeric numbers in place of the alpha-numeric codes for telephone exchanges as the telephones were becoming ubiquitous. The period also saw laying of transatlantic cables amidst growing demand for intercontinental telephone communication. Introduction of telecommunication satellites for transcontinental service followed soon.
By 1976, more than a dozen such satellites were in existence that could handle 30,000 calls each. In the 70s, another breakthrough came in the form of fiber optic cable, developed by an American named Corning Glass (who later founded Corning). The fiber optic cables use laser light traveling through glass instead of electrons traveling through copper. It provides a very high speed of transmission and an information capacity 125,000 times that of a comparable copper wire.
In 1977, these cables were used first time for telephone transmission in Chicago and Boston. ‘By the mid-1980s, fiber optic cable was the preferred method of telephone transmission, since it could carry a much higher volume of calls with much less interference’.
By 1980, it was being used everywhere, on almost every intercity route and on many local runs.18 In the next two decades or so five different generations of fiber optics systems were implemented, and industries wrote off billions of dollars invested in microwave towers and copper cables.
Digital transmission followed the suit soon. Between 1976, when the first computerized switchboard was put into commercial service, and 1982, half of all calls were switched electronically. Today, a telephone acts not just a tool for voice transmissions but offers a range of services that include data transfer, text messaging services (SMS), video transfer and now IPTV.
Advent of Mobile Phones
The Second World War saw the advent of radio telephone which can be called the immediate precursor of the mobile phone. A number of other variants of portable telephones came into vogue during the 1940s in the form of Walkie-Talkie and Handie-Talkie. These were, however, a kind of two-way radios used mostly by taxicabs, ambulance services etc., as users could not dial any number from those phones since they were not connected to any telephone network.
A large community of mobile radio users, known as the mobileers, popularized the technology that would eventually give way to the mobile phone.19 In 1940, engineers at Galvin Manufacturing Corporation (which was later rechristened as Motorola) developed the Handie-Talkie SCR536 AM portable two-way radio, which was used extensively during the World War II.
In 1947 the modern concept of using hexagonal ‘cells’ as mobile phone base stations was invented by Bell Labs engineers at AT&T though the concept had to wait until the 1960s before serious development began.20 ‘A major breakthrough came in 1970 when Amos Joel of Bell Laboratories solved the problem of how a call could be maintained as a user moved from the range of one cell (technically the base station coverage area) to the next and the next. This problem is one that’s termed the ‘handover’ and what Amos Bell invented was the ‘call handoff’ feature.’21 This allowed seamless roaming across cells. This led mobile telephony to be used for even the long-distance journeys. Initially, mobile phones were fitted in vehicles as car phones. In 1873, Motorola launched a prototype design for the DynaTAC (Dynamic Adaptive Total Area Coverage) portable radiotelephone cellular system. It took 10 years for the company to receive approval from the US Federal Communications Commission. The 28-ounce (794-gram) DynaTAC, which is said to be the world’s first commercial handheld cellular phone, was commercially launched in 1984. It cost $3995 to own what had become a status symbol yet by the end of the year in which it was launched there were 300,000 users worldwide. The Japanese telecom giant NTT became the first operator to have launched the first commercial phone service in 1978.
By the end of 2007, there were 3.3 billion mobile subscribers worldwide that is half of the world’s population. This ‘makes the mobile phone the most widely spread technology and the most common gadget in the world.’ Today, mobile phones are no longer used just for voice communications but a host of other things like cameras, calculators, gaming and even shoot videos. In fact, ‘Italianfilmmakers’ used a Nokia N90, to produce the 93-minute New Love Meetings, which is said to be the first feature film shot entirely using a camera phone. The technique underscores what has become a fixture in today’s world: ‘The use of amateur video and cell phone cameras to immortalize moments in people’s lives.
On the Fast Track
Telecommunications sector has undergone significant changes in the last few decades. Two key events have defined development of telecoms globally: Rapid advances in technology and, changes in public policy i.e., transition from monopoly to competition (liberalization). Rapid advancements in technology have led to evolution of Internet, VoIP, convergence etc. Second, liberalization has resulted into the industry making a transition from being a fiefdom of natural monopolists to that driven by competition. With governments the world over deciding to deregulate the sector through both divesting their stake in the state-owned telcos (either through partial or total privatization) as well as opening up the sector to private sector players. As at the beginning of 2003, more than half of the countries in the world have either fully or partially privatized. It has had positive impact on the sector as reflected in the substantial fall in tariffs which led to soaring subscriber base and teledensity across the globe. Further, setting up of industry regulatory bodies (like TRAI in India) has also been a major development.
Another significant change has been the rapid shift from the traditional landline or fixed telephony towards mobile telephony. In the last few decades or so, in terms of growth in the subscriber base, the trend has truly shifted towards mobile phones away from the landline. In fact, in nearly a decade since 1998, the mobile subscriber base has grown several fold to jump from 200 million mobile subscribers to 3.3 billion at the end of 2007. ‘It took a little over a decade for the mobile industry to achieve one billion connections. Two and a half years later the market expanded by another billion, primarily due to expanding markets such as China.’
The worldwide Mobile cellular penetration rate reached almost 50% of the overall subscriber base by the end of 2007, according to the ITU. The global aggregate number of fixed, mobile and Internet subscribers touched 4.5 billion. Of which fixed telephone lines subscribers were 1.28 billion, mobile phone subscribers were 3.3 billion, accounting for 72% of the overall subscriber base, Internet subscribers were 0.53 billion, broadband subscribers were 0.34 billion, accounting for penetration of 8.47% and 5.26%, respectively during the same period. The overall telecom penetration, worldwide, jumped to about 68% in 2007. However, by 2011, these figures have increased by leaps and bounds.
Region-wise analysis of the global telecom market suggests that Asia tops other regions, in terms of subscriber numbers in all the four segments viz., fixed, mobile, Internet and broadband accounting for 49%, 44%, 50% and 38% respectively, followed by Europe and Americas (including North America as well as South America).
N Janardhan Rao, Senior Economist.
