Bust to boom for telecoms by 2010

The telephone industry's struggles to find new ways of making money will have a $1 trillion payoff by 2010, a new study suggests.

Ben Charny Staff Writer, CNET News.com
Ben Charny
covers Net telephony and the cellular industry.
Ben Charny
3 min read
The wireless phone industry?s struggles to find new ways of making money will have a $1 trillion payoff by 2010, a new study suggests.

The UMTS Forum, a group of more than 100 telephone service providers and equipment makers led by British carrier Vodafone Group and including NTT DoCoMo, Texas Instruments and Lucent Technologies, is predicting there will be $1 trillion in total revenues for telephone service operators between now and 2010. The projected fees would be generated in large part by so-called third-generation, or 3G, wireless phone service, which is supposed to be available later this year and will provide always-on, high-speed Internet connections as well as ordinary telephone service.

Reaction to the study among the carrier community ranged from guffaws to polite chuckling. One executive at a U.S. carrier, who asked to remain anonymous, suggested that the forum "do their math again."

The study comes as handset makers Motorola and Ericsson have cut their own projections of the number of jobs that will be slashed and the number of handsets they expect to sell. Even Qualcomm, the Wall Street darling one analyst once predicted would have stock valued at $1,000 a share, has also cut its own revenue projections.

Telephone service providers are also shouldering huge debts. Last year's fervor to build networks capable of offering 3G phone service has cost operators tens of billions of dollars. Now banks are making it harder for the companies to borrow money. The investor community is pounding the stock prices of some of these companies to historic lows.

Yet, "it will all be worth it," although it won't look like it for the next five years, according to the study.

Between now and 2005, revenue from 3G services will be scant, what with just a handful of carriers--NTT DoCoMo in Japan, a British telephone service in the Isle of Man, and two U.S. carriers, Sprint and Verizon--still holding to plans to offer 3G services by year's end. Most other carriers have pushed back start dates, some as late as 2004.

But "there will be a kink in the curve" in 2005, when most of the world's next-generation phone networks are in place, said UMTS Forum spokesman Chris Solbe. UMTS, or Universal Mobile Telecommunications System, is one of several wireless technologies designed to provide high-speed Net service over cellular phones.

From that point, until 2010, third-generation service will begin a hockey stick revenue chart curve that the business community hasn't seen since the early days of the dot-com boom, he said.

In 2010, the forum suggests telephone service providers will be making $320 billion in revenues annually. Operators serving the Asia-Pacific region will have the biggest slice of the pie, with providers in the United States coming in second, according to the study.

Nearly everyone in Europe, Asia and North America will own a cell phone in 2010, with about 2.25 billion phone subscribers roaming the planet. Cell phones will also start penetrating countries that right now don't even have networks constructed, such as in Africa, the study suggests.

The cost of cell phone service will simultaneously drop to a predicted $32 a month for the 3G phone service.

"Compact disks did nothing in their first five years," Solbe said. "But now they are rather ubiquitous."

Jim Gerace, a spokesman for Verizon Wireless was among those who said perhaps the forum is onto something.

"We had $15 billion in revenue last year and another $4 billion in the first quarter," Gerace said. "There are a lot of carriers in the world. Add that all up and it doesn't seem unreasonable."