Arthur Andersen predicts continued convergence within and amongst the industry segments well into the next century, thanks to the advent of digital technology.
Seven of the 10 biggest acquisitions and investments last year were telecom deals. “We see these mergers across what used to be separate industries converging the industries of media, telecom and entertainment,” said Brian Williams, a manager with the Global Communications and Entertainment Group of Arthur Andersen. The company recently released its “Annual Report on the Communications, Media and Entertainment Industries.”
“The enabler is digital technology, which really removes the content and the delivery from the actual physical medium.” There are growing anti-trust concerns arising about the telecom mega-mergers, but the trend will continue, the report said.
Not surprisingly, the wireless telecom sector led all industry segments in growth of capital expenditures, with an increase of 580 percent during the four-year period resulting from last year’s personal communications services network buildouts. Spending on wireless infrastructure is expected to top $60 billion during the next three years, according to the report.
“The 21 (wireless) companies spent nearly $9 billion building out their networks and expanding their technology to serve the exploding demand for mobile communications,” Williams said. “These companies have matured into businesses with real customers and real revenues.”
Wireless revenues grew 356 percent from 1993 to 1997, second only to the revenue growth in the Internet segment at 376 percent. Much of this revenue growth was contributed by companies that did not exist five years ago, said Arthur Andersen.
Western Wireless Corp. had the largest percentage change in revenues from 1993 to 1997, increasing its revenues by more than 18 times-or 1,714 percent-from $21 million in 1993 to $381 million in 1997. Omnipoint Corp.’s four-year revenue growth of 1,633 percent was second-highest.
“The year-over-year revenue gains show a phenomenal growth rate,” said Williams.
Average monthly revenue per wireless subscriber has been steadily declining, from $77 in 1993, to $43 last year. Wireless customer units increased 382 percent during the four-year period, contributing to the decrease in per-subscriber revenues.
“The `lets-just-gain-a-bunch-of-customers approach is not effective in this new competitive environment,” Williams said. “It is critical to understand the customer, and to get the right customer-the one that is most profitable, that brings [wireless carriers] the most lifetime profit.
“Churn is the biggest challenge in this industry.”
Net-income growth during the four-year period lagged behind revenue growth, primarily because of huge capital expenditures. Fewer than half of the wireless companies in the study showed positive growth in the area of profitability.
AirTouch Communications Inc. was the growth leader going from 1993 net income of $40 million to $394 million last year, steadily increasing its net income each year for a change of 885 percent.
U S Cellular Corp. and Vimpel, a Russian operator, placed second and third, with 548 percent and 510 percent, respectively. Commercial satellite operator PanAmSat placed first in both revenue and net income per employee.
