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Asia's Fixed Telecom Services To Hit $136 Billion

Despite a 4.5 percent dip in revenue in 2001, the Asia Pacific fixed telecom services market, including Japan, will continue to show modest growth over the next five years, said Gartner.

The fixed telecom services in Asia will hit US$111.6 billion in 2002, up 1.8 percent from 2001. The industry will continue to experience single-digit growth rates through 2006 where the market is projected to be worth US$136.8 billion.

Telephony currently makes up about 75 percent of the Asia/Pacific fixed telecom services revenue. Although usage volumes have gone up, revenue has dropped 9.3 percent because of severe price competition, tariff re-balancing and increasing deployment of voice-over Internet Protocol (VoIP). Gartner analysts said future growth in the telephony sector would therefore be flat.

"Asia is facing the same problems as what its western counterparts faced several years ago when prices plunged as a result of liberalization," said To Chee Eng, principal analyst for Gartner's Asia Pacific Telecom and Internet research group.

"If it had not been for local call services, telephony revenue would have taken a severe beating. In contrast, data services, including Internet and public IP services, are strengthening. These services already account for 24 percent of the total market and this is expected to increase to 35.6 percent by 2006. Total data revenue is expected to hit US$49 billion in 2006," To added.

Bright Spots

New services, such as IP virtual private networks (VPNs), Ethernet and hosting are projected to be the fastest growing segments within the telecom service sector. However, these segments are growing from a low base and contributions to total revenue will remain small in the forecast period. The bright spot is broadband access, which is promising to become a major revenue stream.

But this does not mean that telephony business would no longer be profitable. Said To: "There is still profit in telephony and it will take a while before carriers find an equilibrium. While the growth is in data, the profit margin is very low and practically non-existent in some services because of excess capacity and competition."

Healthy growth opportunities will be found in emerging markets such as China. Its telecom market will hit US$27 billion in 2006, a CAGR of 7.9 percent from 2001 through 2006. It will account for almost 20 percent of the total Asia Pacific market by 2006, an indication of its growing importance.

A Tough Hong Kong Market

In Hong Kong, however, revenues in the fixed telecom services market dipped 1.8 percent in 2001 over the previous year, raking in US$3.2 billion.

"This was due to severe price competition and margin erosion in international voice and data services, brought about by the arrival of new sub-sea cable systems," said To.

Hong Kong's telephony revenues experienced a dip of 9.4 percent to US$1.6 billion while data services plunged 16.8 percent to US$1.2 billion. In contrast, Internet/IP services grew 18.8 percent to US$427 million, in line with regional trends. But this was not sufficient to offset the decline in the other sectors, To added.

The bad news is that the Hong Kong market will continue to face pricing pressures over the next few years due to excess international network capacity.

But on the other hand, Gartner sees that price declines have slowed. In addition, usage volume is increasing significantly, especially for communications with China and north Asia. As such, revenues are expected to see incremental growth over the next few years, reaching US$4.3 billion in 2006, a CAGR of 4.3 percent.