One business contributing up to five percent of a country’s GDP; that’s the reality in many developing countries where economies are not as diversified and where telephone companies are huge contributors to the national economy. In the U.S., for instance, even behemoth companies like Microsoft do not contribute anywhere near one percent of GDP. By contrast, in small countries where telephone companies are the largest employers, the failure of a telephone company, any major reductions in investment or significant layoffs from a telco could have disastrous economic consequences.
REDCOM (News - Alert) Laboratories, Inc., a research company specializing in delivering digital telecom and solutions, recently published a white paper outlining the significant dangers posed to developing economies by telcos, which tend to be the largest employers in developing countries and the largest single contributors to the country’s GDP. In addition to employing significant numbers of people, telcos in developing countries contribute large amounts of corporate income tax to the country’s coffers, pay import duties on expensive equipment and pay dividends on government-owned stock.
Now, thanks to the development of VoIP and next-generation networks, these telephone companies face competition from virtually anywhere in the world. The technology associated with an NGN is not backwards compatible, and telcos often can’t afford to buy an entirely different network core.
To avoid a large capital expenditure on new equipment, telcos may choose to outsource their communications control equipment, such as the telephone exchange, Internet servers and mobile MSCs to a provider in another country. The outsourcing has a positive effect on the telco’s bottom line: no core assets to maintain, no capital expenditures, low operating expenditures and no import duties. All of this cost slashing leads to an immediate jump in profit. At the same time, outsourcing leads to a variety of disastrous scenarios.
Imagine a country in which the entire telephone system went down. Potentially, with a monopolistic telco outsourced to a faraway provider, a network failure, a failure to pay bills, a cease-and-desist court order or a service provider’s decision to exit the market could have disastrous consequences for a developing country. Phone (News - Alert), fax and wireless communication nationwide would stop. The entire country would have no means to communicate either domestically or internationally.
If the telco could not find another service provider quickly, then the telco would no longer have a reason to exist because it could not afford to purchase equipment. This could result in complete staff layoff and a full stop in economic contribution. If the telco makes up five percent of GDP, then the country could immediately fall into a severe recession. Without communications, other businesses would not be able to conduct their daily operations, which would only worsen the situation.
Edited by Stefanie Mosca