Globally, fiscal 2002 did in fact turn out to be a year marked by a slowdown in growth but very much heavier than expected. Worldwide growth stood at 5 percent, far below the figure of just over 10 percent for 2001. However, these figures should be seen in perspective by bearing in mind that telecom services continued to display growth levels above those recorded by the global economy in general.

Occurring together with the slump in the telecom services market was a strong readjustment of the hitherto geographical imbalance. First to be pointed out in this connection is the 1.4 percent downturn in the North American market resulting from increased price competition and the general slowdown in the economy. Asia, on the other hand, proved the existence of a strong market potential by recording sustained growth in 2002 (11 percent). Europe occupies an intermediate position with a growth figure of just over 7 percent, which lies above the worldwide average. Lastly, mention should be made of the marketsin Latin America that were seriously hit by the recession in the region and shrank by nearly 9 percent.

Apart from the outside effects mentioned above, structural changes have also had a strong impact on global growth in the sector. The most obvious in this context is the clear decline in the importance of fixed telephony in the industrialized countries.

The falling trend observed in recent years was sharply accentuated in 2002, particularly as a result of the fixed/mobile substitution movement, so far as Europe is concerned, the introduction of carrier selection for local traffic in many Member States. The mobile sector continued to grow but at a slower rate, varying according to country. In the industrialized countries where the markets are nearing saturation point, the introduction of new services has so far done nothing to improve ARPU levels. Lastly, the high-speed sector continued to expand but it is still too small to produce any significant impact on the telecommunications sector as a whole.

After the swelling and bursting of the telecoms bubble in 2000, which caused a massive upheaval in the sector, 2002 was a year that featured major restructuring programs among operators and an often sharp fall in equipment orders, with priority being accorded to debt reduction and a return to profit. While record losses and new bankruptcy cases remained the order of the day, the first effects of restructuring began to be felt. Net income figures improved, while the steeply rising debt trend either levelled out or was reversed in the case of both European and US operators.

Short- and medium-term growth prospects may be outlined on the basis of the following trends:

Restructuring of the sector is well under way in both the US and Europe, which should gradually create a more favorable climate for investment. At the same time, growth strategies are being more sharply targeted.

Growth prospects will be sustained in the medium term, thanks to new mobile and Internet services in the more developed markets of North America, Japan and Europe, as well as in the emerging markets. These latter markets will be the major growth areas in future, even though its has been shown that, once the economic recessions were over, as in the recent case of Latin America, they remain highly dependent on economic conditions around the world in general. In the short term, the stimulus provided by new services could point to a modest return to growth.

Growth in the telecom services market in 2003 can be expected to continue at a dampened rate as in 2002 and to reach a figure of 5 percent, followed by a gradual improvement.

Where Did Growth Occur in 2002?
At geographical level, market trends in terms of value displayed sharp contrasts from one country to another:

n Western Europe saw a sharp decline in growth rate, from 14 percent in 2001 to 7 percent in 2002, with mobile telephony being the most powerful driver (up 11 percent in 2002, compared with 23 percent in 2001). Mobile operators succeeded in increasing revenues in 2001 by attracting new subscribers. But growth in the subscriber base has since taken a downward turn in markets rapidly approaching saturation. Mobile operators are currently seeking new vehicles for growth through the introduction of services like MMS and European versions of the Japanese i-mode, while bettering their management performance. It has also been no surprise to observe the steady erosion of incumbent operators’ revenues from fixed services, which fell in value for the first time during the year as a result of the price war. Internet and high-speed services were the most dynamic areas with figures up 23 percent, but still accounting for only 7 percent of the total.

n North America, which still accounted for 31 percent of the world market in 2002, saw a sharp fall in activity in 2002 (revenues in the US down 1.4 percent on the previous year). Growth in the Internet and mobile segments (12 percent and 30 percent respectively) was not enough to compensate for the 13 percent decline in the fixed sector, which represents close on half of the total market. Fixed telephony was badly hit by the general economic downturn, by pressures on prices and increased competition from the mobile and e-mail sectors. The year was also marked by serious financial difficulties facing some of the topmost operators, with WorldCom (the biggest case of bankruptcy recorded in the US), Global Crossing and AT&T Canada filing for Chapter 11 protection.

n The Asia-Pacific region, where the market value is currently nearing the level of the North American market, constitutes the main driver of growth at world level with a 2002 figure of 11.5 percent, far above the worldwide average. But behind this figure lie wide differences among the countries of the region: still accounting for over 50 percent of the Asia-Pacific market in terms of value, Japan continues to enjoy a relatively modest growth rate of close on 6 percent, while other countries have experienced radical change. China, for example, became the world’s leading market in 2002 by number of subscribers in both the mobile and fixed sectors (more than 200 million subscribers in each). With 27 percent growth in the telecoms market as a whole in 2002, it has become an essential component of the worldwide picture. India takes its place as the next main emerging market of the region with a threefold increase in mobile subscribers over a period of two years, reaching a figure in excess of 9 million at the end of 2002. Asia should constitute the highest-growth region in the short and medium term.

n The other developing of emerging countries displayed average growth of 3 percent in 2002, but again with wide differences among countries. In Latin America, which has been seriously affected by the repercussions of the regional financial and economic recession, the market shrank 6 percent. Africa and the Middle East, with sharp contrasts from one country to another, enjoyed sustained average growth of 12 percent. Central and Eastern Europe, lastly, recorded a growth rate of 8 percent, with mobile telephony as the main driver, while the fixed sector showed signs of stagnation. In the medium term, these regions display favorable growth prospects in view of the coming or planned adherence of several countries to the European Union.

Sectoral Analysis
From a sector-based viewpoint, fixed telephony continued to spiral downwards but at a faster rate than in 2001, since which date its share of the total telecommunications market has fallen to below 50 percent. Over the coming years, it will in all likelihood lose its place as the main source of revenue in the sphere of telecoms services to the benefit of mobile telephony.

n Fixed telephony was down 1 percent after enjoying 2 percent growth in 2001 that was fuelled mainly by the demand in emerging and developing countries. The downturn was most marked in North America, where revenues were down 13 percent and the number of fixed lines fell over 2 percent (over 4 percent for the RBOCs). Long-distance operators and RBOCs suffered a fall in fixed revenues and lines as a result of severe competitive pressures, substitution by mobiles and e-mail and a deterioration in the economic situation. In Europe, the fixed telephony sector remained largely unchanged, with stagnation in the number of lines and a fall in ARPU levels resulting from price readjustments, increased competition and the loss of voice traffic to the mobile sector. Despite the improvement in the fixed sector in developing countries, the substitution phenomenon is even more striking, with mobile services taking over from fixed telephony in regions lacking basic infrastructure and in countries where the mobile sector has been liberalized. Found at varying degrees of intensity according to region, these trends should continue and result in reduced growth in fixed services over the next few years on an average annual basis of 2 percent up to 2007.

n Mobile services are still enjoying a satisfactory growth rate, which reached 13 percent in 2002, compared with 21 percent the previous year. The improvement is more noticeable, however, in countries like China and India. The falling rate of increase in the number of new subscribers first observed in 2001 continued into 2002, especially in Europe, confirming the trend towards market saturation. It will almost certainly not be before 2005 that new mobile data services will allow for any significant improvement in ARPU levels.

n The data sector has also suffered reduced growth, for which an annual rate of 6 percent is forecast up to 2007. The increase in traffic is being offset by a continuous lowering of prices and a changeover to new high-speed solutions. To be mentioned in this context is the ‘historical’ importance of the US, which accounts for 41 percent of world revenues in this sector.

n The Internet and high-speed sector is displaying growth, sustained by an increase in the number of Internauts (up 27 percent in 2002), even though it still accounts for no more than 7 percent of the total telecoms sector. It is in the Internet sector and more so in the area of high-speed services, that the greatest differences between developed and developing countries are to be found, the latter accounting for scarcely 10 percent of global revenues generated by the high-speed market in 2002. In the US, there was a 55 percent increase in high-speed access services in 2002. Despite a growth rate of 64 percent, DSL access has been unable to reduce the gap that separates it from high-speed access via cable, which reached a figure of 11.4 million at the end of the year. Enjoying a 76 percent increase over the year, high-speed access in Europe seemed to have finally taken off in 2002. But with a subscriber base of 12 million, Europe is till lagging behind the US by 4 million. The greatest growth potential for the segment is to be found in the Asia-Pacific region, led by Korea and followed by Japan and Taiwan. The potential is also interesting in Latin America, and in Eastern and Central Europe.

Didier POUILLOT
Industrial Analysis Department, IDATE