Mapping the New Long-Distance Landscape

At the end of 2003, there were 631 longdistance carriers in the United States that generated $86.3 billion in interexchange revenue, according to ATLANTIC-ACM’s new study “The New Long Distance Landscape 2004-2009: Sizing & Share.”

Regulatory events throughout 2003 and this year are dramatically altering the long-distance landscape, however, and these carriers face a turbulent, vastly different marketplace over the next five years.

Voice Market Shrinkage.

New ATLANTICACM analyses reveal the long-distance retail voice segment will decline at a compound annual growth rate (CAGR) of 4.8 percent, from $39.8 billion in 2003 to $29.6 billion in 2009.

This decline is being driven by mass migration to VoIP due to price compression, wireless and e-mail substitution, and slower/reduced domestic spending, among other factors.

Within this overall reduction, however, a shift of market share is underway. Tier 1A companies, which generate more than $5 billion in annual long-distance revenue, are experiencing a rapid decline in retail voice revenue that will drop from $21 billion this year to $6.6 billion in 2009. Tier 1B companies, which generate greater than $1 billion and less than $5 billion annually, will increase their revenue from $7.5 billion in 2004 to $153 billion in 2009. The bulk of this revenue growth will be experienced by the RBOCs as they quadruple their segment revenue to become dominant players in the consumer segment following this year’s UNE-P breakdown.

Voice revenue also will decline on the wholesale front. The wholesale long-distance voice market is expected to decline at a CAGR of -3.8 percent during the forecast period of 2003 to 2009. Tier 1 carriers account for the bulk of wholesale revenue and, therefore, will absorb most of the wholesale shrinkage.

Data Market Expansion.

The private line and data market, which includes IP products and services, ATM, frame relay, wavelength- OCs, DSx, private lines and the like, will grow at a CAGR of 1.1 percent, or from $30.1 billion in 2003 to $32 billion in 2009. Here, Tier 1 carriers will retain significant market share. In 2003, they had market share greater than 90 percent. When 2009 rolls around, their share will be 86 percent. Wholesale data revenue for all Tier 1 carriers will grow modestly over the same timeframe.

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From a macro perspective, major market share shifts will occur between the “Big Three” long-distance players (AT&T, MCI and Sprint), the RBOCs and the cablecos. The RBOCs, which will take up positions in the consumer long-distance market, will grow their collective market share from less than 15 percent in 2003 to more than 35 percent in 2009. At the same time, the Big Three will lose their collective majority market share.

Cable companies represent the primary future threat to market share loss for the RBOCs. In the next few years, any house with a cable modem broadband connection could terminate its RBOC services and adopt VoIP services. Hence, any disruption to projections built upon RBOC dominance in the consumer realm is likely to come from this angle. It is important to note that major alliances between long-distance giants and cable companies look to retard and disrupt RBOC advances in the long-distance sector.

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The long-distance market is in a state of flux, facing shrinkage and massive shifts in market share. While the overall picture shows a shift away from long-distance providers to RBOCs and, depending on how regulations pan out, cablecos, signals a major turning point for the long-distance industry. As we have seen throughout the history of telecom regulation, companies that thrive will be those nimble enough to ride shifting tides.

Taher Bouzayen is vice president of Bostonbased ATLANTIC-ACM. Information for this article was taken from ATLANTIC-ACM’s new study, “The New Long Distance Landscape 2004 – 2009: Sizing & Share.”



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