How has Telecommunications Technology Evolved from Analogue to Digital and Beyond?
Earth has always seen people communicating from great distances, including through drums and smoke signals in the early ages. However, the evolution of telecommunications technology has made these merely an exotic attraction as they are of no use nowadays!
Today, you can connect to an individual in another part of the world in a fraction of a second, all thanks to incredible developments in the communications sector. The telecommunications sector comprises enterprises that make global communication possible. While long-distance electronic telecommunication was restricted to words and the voice, in the beginning, these companies have contributed to expanding horizons by enabling you to transfer videos, pictures, music, sound, and even words, through a plethora of mediums.
The telecommunications industry is made up of government as well as private services that enable communication through cables, airwaves, wires, and, the most innovative of all, the internet. It is the Internet Service Providers (ISPs) that are credited for a significant evolution of telecommunications technology over the years, through Voice over Internet Protocol (VoIP) technology.
Read on to learn how innovation and deregulation of the telecommunications sector in the UK, and the introduction of internet services, has altered the market landscape altogether.
Evolution of Telecommunications Technology – Then and Now
It was in the 1830s when good old letters were given a twist, with the introduction of telegraphs, allowing messages to be transferred through electrical channels. The fact that the messages could now be sent within hours, not days, made them an expensive yet popular choice of the time.
However, telegraphs were expensive and certainly not enough. Therefore, the 1870s saw the most significant evolution of telecommunications technology: the invention of telephones, which, strictly, followed a wired protocol. Each organisation and household that wanted the service had to be connected through wires. This was followed by the introduction of radio, which enabled people to communicate to a mass audience through airwaves.
While telephone and radio were good, there is no denying the enduring scope for innovation. Therefore, after the invention of the computer, the telecommunications sector never looked back. Within a couple of decades, the innovators and scientists came up with the internet, Local Area Network (LAN) connections and the World Wide Web (WWW).
The contribution of the internet in the evolution of telecommunications technology cannot be ignored, and with the potential that it still has, you never know when they will devise technology to teleport people and objects!
Various ISPs allow the voice to be transferred on the internet. This technology is popularly known as VoIP. By allowing internet users to communicate over the net rather than relying on wires, companies have reduced the cost of voice and video communication to zero. Voice over Internet Protocol simply converts the audio signals into digital signals, which follow the old packaging technology for moving a voice from one end to another.
Wireless digital technology has brought the world to the palm of our hands, with each device having the capacity to connect and communicate with the world through voice and other forms of media. Everything as a part of the evolution of telecommunications technology has been made possible by the companies that have spent years in developing the infrastructure, and other subsidiary units that make sure that equipment such as computers, smartphones, routers, switches, etc., reach every household.
Amongst all the communications sector giants, the equipment manufacturers are the largest stakeholders, followed by telecom services and wireless communication providers.
How Does the Telecommunications Sector Make Money?
When it comes to the revenue of the telecommunications sector, most of it is generated through simple telephone calls. However, this might not remain the same for long because the influx of new digital media has already started to revolutionise the game. More and more users are switching to video calls, texts, and sharing media files, bringing the trend of voice calls to a stand-still. This is because of the increased access to high-speed internet, which has, again, played an essential part in the evolution of telecommunications technology.
Plus, it is not just the big business houses that have access to excellent internet-based services; even small households are tech-savvy enough to bring entertainment to the home with the power of the internet. It is the wide-spread use of mobile phones in every part of the world that has brought about a revolution in telecom technology and contributed to the evolution of telecommunications technology.
Now that telecommunications are not a government monopoly, there is an uncountable number of players in the British market, all striving to make a mark in the consumer markets. The toughest of all is the residential and small business market, which, once tapped, can bring a massive flow of revenue. The only tried and tested method of becoming a part of consumers’ monthly checks is to establish a brand name and associate it with an innovative business solution.
Apart from households, other big consumers for the telecommunications companies are in the corporate markets. It is the quality of service, e.g. the data delivery speed and unwavering communication, that attracts them. If the service game of a company is on point, corporates are not as price-sensitive as other consumers.
The big multinationals rely on their internet speed for the majority of their operations; therefore, they are ready to pay premium prices for premium services that include high-security data transfer and videoconferencing services.
The bigger telecom providers not only rely on the consumer markets, but they also benefit by providing the new entrants in the industry with network connectivity. Large corporations and ISPs take their wholesale network services because, due to the evolution of telecommunications technology, the networks are strong and incomparable in terms of reliability and global reach.
The Classification of the Telecommunications Industry
The Telecom Equipment Providers, Telecom Services, and Wireless Service Providers are the three major categories in which the telecommunications companies lie. This classification can be further segmented into:
- Wireless Communication Services
Wireless communication services are the mobile and data services that allow communication as well as transfer of data over the World Wide Web. Cloud-based storage services can also be a part of these services; increasing popularity of which has made this segment of telecommunications a market hit.
- Communications Equipment
Communication cannot be possible without the availability of pre-requisite equipment. This equipment includes everything from infrastructure development to cell phones, routers, switches, and more. The companies that manufacture and sell this equipment in the market are the largest stakeholders in the telecommunications market, growing at an unbelievable pace.
- Processing Systems and Products
The processing systems and products include the Management Information Systems, which the telecommunications sector has to use for processing transactions efficiently. With the evolution of telecommunications technology, the processing systems and products have also become more compatible to handle complex operations.
- Long Distance Carriers
Long Distance Carriers allow the local telecommunications giants to connect their customers with the telecommunications market across geographical barriers. They enable customers to communicate with their loved ones outside the areas of their service.
In the UK, most trunk calls are made through Digital Fibre Optic Cables. The transmission has been limited to smaller areas due to reduction of reliability on satellite connections.
- Domestic Telecom Services
Domestic services are catalysts in the evolution of telecommunications technology on a local scale because they enable the companies to tap the regional market potential.
- Foreign Telecom Services
Like the domestic telecom market that has allowed companies to tap the local consumer market, foreign telecom services have tapped an enormous amount of potential on a global scale.
- Diversified Telecommunications Services
The diversified telecommunications services are essentially the support services for the telecommunications industry. They include installation, programming, consultation, and other support services. These services associate with the telecommunications giants on a contract basis, allowing them to provide after-sales and installation services to the clients.
The diversified services are important since the evolution of telecommunications technology for helping customers stay up-to-date with the new features and additions.
The unbelievably rapid shift towards the cellphone-based internet will soon make Wireless Services the largest sector of them all. This is also a result of the shift towards cloud-based storage. Consequently, continuous global expansion of telecommunications technology is likely to be on the cards for decades to come.
Various organisations that are involved in the research of global telecommunications trends suggest that even the most developed nations have the scope for development in the sector because the potential of the rural arrangements remains untapped.
Furthermore, the individuals who have access to a reliable internet connection can never be satisfied because they are always on the lookout for a network that can connect them to the world faster than the one they are currently using. Their need for speedier connections arises mainly due to the entertainment sector, which requires higher resolution, on-demand video streaming, and a multitude of interactive applications and games. Here, we can plug-in another addition to the media industry, with the evolution of telecommunications technology – live streaming on social networks.
To meet these demands, the companies will have to make substantial capital investments in the sector, including the improvement of infrastructure apart from the establishment of network towers. The companies who will be able to make such expenditures are destined for success; however, they will need ample infrastructure for this.
Investments in the Telecommunications Sector
The evolution of telecommunications technology has rendered the telecommunications sector a rare industry where there is a lot of scope for both growth-oriented investors and income-oriented investors.
As mentioned above, the rapid growth and increasing dependence on wireless services will make it the largest segment in the industry, rendering it perfect for the growth investors. The smaller wireless services providers are looking for investors, allowing investors a better chance at negotiating the terms. Also, the growth will contribute to share price appreciation.
On the other hand, the larger companies, which have established their brands as the leading equipment and solution providers, turn out to be a haven for income-oriented investors.
There is no shying away from the fact that the telecommunications market is unbelievably volatile when it comes to the business cycle. As soon as the new technology takes over the market, it has a high potential of making the previous set of equipment, and even the processes, obsolete. However, no amount of evolution of telecommunications technology affects the demand for these services, even though it can become a little more price-sensitive with every change.
As a result of constant global demand, the telecommunications services are gold for value investors. Also, it is the government mandate in implementing the technologies that keep the sector under surveillance, making it impossible for telecommunications companies to exploit customers. Thus, a loyal customer base keeps the dividend yields stable for the long term.
However, substantial changes, such as mergers and introduction of a new, lower-priced plan by the competition, can bring low-ranged turbulence into the industry. Now, it is up to the concerned companies as to how they are going to manage the change and cope with the competition. Furthermore, they can be advantageous both for the investors and the companies because there are more companies for the investors to invest in, and a chance for companies to bring about a change in orientation for recovery and better profits.
The evolution of telecommunications technology will support the companies that are more open to change and, at the same time, have developed a solid base in the market. Now, even if they hit a standstill, they have the support of value investors to keep them afloat until they are able to get back to the market. The investors will have no trouble in waiting for share prices to improve because they are aware of the growth trends of the sector already.
With telecommunications being a comfort for many rather than an absolute necessity, it is the bull markets that tend to prove favourable for the investors. However, as soon as the industry hits the bear markets and recession strikes, these investors will be the ones to take the first strike. Therefore, investors must keep in mind the volatility of the three segments, and the rate at which the evolution of telecommunications technology is taking place, before making huge monetary commitments.
Telecommunications Giants in the UK
- BT Group
Formerly known as British Telecom, BT Group is a multinational telecommunications company headquartered in London, UK. Being the largest telecom service provider in the UK, BT Group has expanded operations in as many as 180 countries, that too in numerous industries including fixed-line, mobile, broadband services, television services, and IT services.
The financial performance of the BT Group, as of year ending 2018, has been a staggering turnover of 23,746 million Euros, making it an attractive investment option for income investors.
- Vodafone UK
With over 17.2 million subscribers, Vodafone UK is one of the fastest-growing networks in the UK. It is expanding its horizons in both mobile networks and fixed networks. As a part of the Vodafone Group, which has established a solid base in 60 countries, Vodafone has the most influential brand image establishment game in the country. It has adopted incredible marketing strategies, such as setting up Vodafone stores, a VIP rewards scheme, service guarantees, attractive slogans, and more.
The British Sky Broadcasting Group (BSkyB) is owned by Comcast and is a leader in adapting to the evolution of telecommunications technology. It is the largest pay-TV broadcaster in the UK, with a customer base of 12.5 million customers. Not just that, Sky, as it is popularly known in the UK, provides fixed-line services, internet broadband services, and mobile internet services.
- Everything Everywhere (EE)
A division of the BT Group, EE is one of the first services to have tapped the fullest market potential within a few years of its establishment, as it came into operation in 2010. It is a result of a merger between two separate companies, formerly known as Orange and T-Mobile.
Owned by a Spanish multinational, Telefonica, O2 did not take long to become a customer favourite in the UK, with a whopping 25.1 million subscribers as of May 2019. It is the leader in innovation because it was the first in the world to introduce General Packet Radio Service (GPRS). Also, it added the first and second-generation mobile networks in the country.
- Virgin Media
Headquartered in Hook, Hampshire, UK, Virgin Media is a leading Fibre Optic Cable network operator in the UK. Instead of connecting these cables to the customers’ premises, the cables extend to their street cabinets, known as Fibre to the Cabinet (FTTC). It has its fingers in television services (Virgin TV), broadband services, fixed-line services, and mobile telephony services.
Apart from the above telecommunications service providers, the giants like 3 (Hutchison Group) and TalkTalk Group also rule the British telecommunications market.
Evaluation of UK’s Telecommunications Sector
Now that you know which companies are leading the telecommunications sector in the UK, it will be easier for you to evaluate them.
To grow the customer base in a market that survives solely on the Average Revenue Per Customer, one primary strategy these companies have adopted is to attract as many customers as possible. For this, they need to have an incredible marketing technique, combined with technology in line with the evolution of telecommunications technology, which the consumers find more useful. Once a good number of consumers have subscribed to the network, this number is enough to attract the crowd.
It is not hidden from investors that the telecom sector cannot survive without reliable investors because it needs to maintain hefty cash flow. The cash flow is required to maintain the previously installed infrastructure and keep adding to it. Also, the sector needs money to stay in touch with the market and absorb technological advancement as soon as it is introduced into the operation.
The challenges of keeping the transmission in place at all times, and interconnecting with the more prominent companies for finishing the job, make the market difficult for new entrants. However, if they remain persistent and work in line with the interests of the consumers and the investors, they are more likely to grow big at a quicker rate.
It is the price-to-sale ratio and the Average Revenue Per User (ARPU) that can help you determine the revenue of a telecommunications company. This is because, with the evolution of telecommunications technology, the competition has become cut-throat. The contenders are cutting down on pricing to retain customers, which is the only indicator of the company’s success nowadays.
Future of the Telecommunications Industry
If telecommunications companies want to stay in the limelight and retain loyal customers, they will have to opt for new acquisitions and mergers. The long-term success in the telecommunications sector requires the continued support of investors and customers. While the customers might move from one service provider to another, the investors are more likely to stick to one company until and unless they have exploited its market potential to the fullest.
Apart from being an attractive investment option, the telecommunications industry offers immense growth potential in the technological domain as well. This evolution of telecommunications technology will not only benefit the urban regions of the developed nations, but will also boost the growth and development in the Emerging Technological powers.
It is the provision of VoIP Technology Services and faster, higher resolution services that will be the focus of consumer demands in the future, and the telecommunications companies will be left with no option but to fulfil these demands if they want to survive in this competitive market landscape.
To conclude, it is the evolution of telecommunications technology, or, as the title says, the shift from analogue to digital communication, that has brought about a revolution in the world’s biggest economies.
Everyone, from private residences to big corporate houses, is shifting towards handier internet-based calling (VoIP) rather than the good old telephone. This doesn’t mean that the fixed lines have disappeared or become useless; it is merely the result of choice, which the consumers have made by switching to wireless connections and cloud storage. Ultimately, the evolution of telecommunications technology is bringing a positive change.
Also, due to the fact that the government controls the competition in most countries, the customers are only likely to benefit from it.
As far as the market is concerned, in these volatile times, there is no way one can harness the growth without the risk of losses. Therefore, there is no reason why the investors should hold back now and not derive benefits from the current bullish trends in the telecommunications market.