Three years into a brutal downturn for the telecom sector, some execs say they can hear the industry's growth engine finally purring again. And if the sound isn't quite like the fine whine of a Ferrari or Maserati, the low rumble sure beats the eery silence that has prevailed since the industry bubble burst in late 2000. "We're seeing signs of recovery, with improving financial positions," says Keiji Tachikawa, chief executive of Japanese wireless powerhouse NTT DoCoMo (DCM).
Hope rides on wireless data. Traditional telecom revenues are still shrinking in big markets such as the U.S. And the growth rate for mobile voice services in developed countries such as in Europe is slowing down. But the wireless data market is growing at double-digit rates around the world, thanks to the arrival of higher-speed connections and fancy mobile handsets that pack the power of tiny computers (see BW Special Report, 10/20/03, "The Wireless Challenge").
"I believe the industry has found a new growth engine, and it's broadband wireless," says Intel's (INTC) Sean Maloney, general manager of the chip giant's communications group (see BW Online, 10/13/03, "It's "All about Broadband Wireless"). He and Tachikawa were part of a panel on Oct. 12 that helped kick off the huge ITU Telecom World 2003 trade show sponsored by the International Telecom Union, a global organization that coordinates telecom networks, services, and standards. It's held every four years in Geneva.
BIG CHANGES COMING. Signs of growth are emerging from beyond traditional telecom as well. Over the last two years, one of the few bright spots has been Wi-Fi, a wireless networking standard that was barely on the radar screen during the last big European trade show in 1999, Maloney says. He predicts that as Wi-Fi catches on, giving users wireless high-speed connections to corporate networks or the Internet, the business models in all sorts of industries, from construction to retailing, will change.
Next year a more sophisticated version of Wi-Fi will be rolled out. Known as Wi-Max, it will boost Wi-Fi reception from a few hundred yards to as much as 70 kilometers (43.5 miles), making it more of a rival to traditional phone networks.
Wi-Fi's appeal is already being felt around the world. At a McDonald's (MCD) restaurant in Hong Kong, customers are greeted at the door by someone who takes their order with a Wi-Fi-enabled PDA, Maloney points out. Their food is ready by the time they reach the counter at the back of the restaurant, reducing wait times and boosting productivity.
3G KICKS IN. Retailers will soon be able to greet customers on the floor, using similar devices that can tap into records of the customer's previous purchases, suggest additional products that the customer might want to buy, and process a credit-card transaction. That will eliminate the usual wait at the cash register. "Broadband wireless is going to be disruptive for certain kinds of business models," Maloney warns. But for many retailers, it could boost sales and increase customer satisfaction.
Beyond Wi-Fi, wireless phone networks are also becoming increasingly powerful. While many companies have piled up massive debt on licenses for next-generation 3G mobile-phone services (the industry has bid a combined $100 billion on building out such services), some of the systems are finally going into operation. Japan has more than 1 million 3G subscribers, according to Tachikawa. He thinks that's just the beginning. As smaller, cheaper 3G base stations are developed, service will be increasingly available, with expanded coverage areas and better reception inside buildings, he says.
These are encouraging signs for a beleaguered sector. But the recovery has risks. The biggest may be a new inclination to slap more regulations on telecom's fastest growing sectors. In the U.S., California and other states may move to regulate wireless prices and reliability as soon as this year, according to analyst Rudy Baca of Precursor Group.
SLOW TO CATCH ON. Such regulations could do serious damage to a fragile rebound, many at the conference fear. With wireless calls, including long-distance and voice-mail, averaging 10 cents a minute in the U.S., price is hardly an issue, they say. And while the reliability and coverage of wireless systems still leaves much to be desired, it's a problem that needs to be solved by technologists with access to capital. It would be far more productive for government regulators to focus their efforts on ensuring that wireless users have enough spectrum, they say.
The other big risk to recovery comes from the sector itself. Telecom outfits need better insights into their own markets. How is it that so few of them appreciated Wi-Fi's promise until its applications became obvious? One theory is that telecoms spend too much time lobbying regulators and fighting each other in court -- and not enough time listening to their customers.
The greatest risks to recovery have been eliminated, however, most at this conference agree. The overconfidence that drove telecom to massive overcapacity and financial disaster was purged in the downturn, which wiped out $2 trillion in capital-market value. "The mood is cautious optimism," Maloney says. For the moment, that's good enough. By Steve Rosenbush at the ITU conference in Geneva. Follow BusinessWeek's exclusive telecom coverage, only on BusinessWeek Online