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[January 18, 2005]

Deloitte Identifies Top Trends in Telecom for 2005


Deloitte's Technology, Media and Telecommunications (TMT) industry group today announced its predictions for the global telecommunications industry in 2005, forecasting a year of significant milestones, as well as difficult questions.

Phil Asmundson, a Vice Chairman and Partner with Deloitte & Touche LLP and National Industry Leader for Deloitte's TMT industry group, commented, "The mobile and wireless market will overall maintain a positive trajectory in 2005. By year-end there will be close to two billion subscribers and several markets will have penetration in excess of 100%. In addition, billions of RFID tags will be deployed, marking the start of another major wireless revenue stream."

"Fixed operators will continue to reap the benefits of superior voice quality and reliability in 2005, generating billions of profitable voice minutes over the course of the year. However, they will face increasing challenges from low-cost operators, mobile operators and Voice over IP (VoIP). Broadband will continue to proliferate -- fueled by technology developments that drive demand for bandwidth -- yet profitability will decline. Wireless technologies will exhibit a similar pattern, with WiFi hotspots and WiMAX making more headlines than money. The industry's future success will hinge on reinvigorating demand for fixed-line connectivity by providing bundles of converged services; making fixed-line handsets more powerful and convenient to use; and accelerating deployment of fiber-to-the-home (FTTH)."

Three key trends identified in the report are:

1. Small talk by billions adds up to big revenue
By the end of 2005, there will be nearly two billion cellular mobile subscriptions worldwide. Subscriber growth will be strongest in developing countries (including Asia and Latin America) where mobile phones are both a transformational technology and a status symbol. Voice will continue to be the primary source of revenues and profits -- on average accounting for more than 80 percent of total revenue; mobile voice volumes will continue to grow steadily due to ease of use and falling prices. Penetration will surpass 100% as more customers take a second subscription for data or for personal use; providers will structure plans accordingly and services will include automatic line switching, multiple voicemail accounts and separate billing. The most compelling and lucrative mobile content will continue to revolve around phone personalization, such as ring tones, real tones, wallpapers and basic games.

2. Strength in PSTN, VoIP and Broadband
In 2005, the vast majority of voice calls will still originate and terminate on the PSTN (Public Switched Telephony Network) due to superior call quality and overall reliability. PSTN operators will reduce prices in response to the competition from low cost providers (mobile and VoIP), causing margin pressure. They should focus on marketing their superior capabilities and investing in full-featured phones with key convenience features, such as stored number dialing, text messaging and conference calling, to stimulate call volume over fixed lines.

Meanwhile, VoIP both call volume and the user base will increase significantly among consumers and businesses. Adoption and growth will be limited by shortfalls in VoIP's quality, consistency and reliability and the resulting slightly negative image in the marketplace; for enterprises, cost-savings will often be less than anticipated. Many companies will opt for a hybrid approach, using VoIP for internal communications and the PSTN for external traffic.

Broadband penetration will continue to grow in 2005, with broadband connections finally outnumbering dial-up in many countries. Prices will continue to come down, driving customer churn, raising acquisition and retention costs, and cutting sharply into profits. Broadband use will continue to revolve around PC applications, limiting the perceived value of a broadband connection; in 2005, more broadband appliances -- such as video-phones, networked gaming consoles and home security devices -- will be launched, but operators will do little to promote them.

3. RFID: The giant awakens
In 2005, RFID will finally make it out of the lab and into the commercial world. The combined influence of major retail chains, defense contractors, automotive manufacturers and others -- all of whom are requiring suppliers to use RFID -- will prompt a massive increase in RFID adoption, starting from essentially zero. By the end of the year, more than 10 billion RFID tags will have been sold and used. RFID is not just a replacement for barcode; it is a transformational technology that can help reduce waste, curtail theft, manage inventory, streamline logistics and even increase productivity. Collecting, collating and presenting all of that RFID data will become a very sizeable industry, with IT companies grabbing the lion's share of revenue. RFID readers and other hardware will also represent a very healthy market. RFID applications will also be used in healthcare (for monitoring patients), construction (for managing projects and equipment), and even transportation (for monitoring baggage and passengers in airports).

As used in this  release, the term "Deloitte" includes Deloitte & Touche USA LLP and its subsidiaries Deloitte & Touche LLP, Deloitte Consulting LLP and Deloitte Tax LLP.

Predictions Methodology
These predictions have been compiled by Deloitte Research (a part of Deloitte Services LP) on behalf of Deloitte's Technology, Media and Telecommunications (TMT) Group. The major inputs used in writing the predictions were: input from the 5,000 strong TMT team around the world; discussions with leading industry and financial analysts; interaction and conversations with clients from the telecommunications and related sectors. These predictions do not claim to be fully comprehensive, but rather provide a commentary on major industry trends and developments. For more information, please visit the U.S. member firm's website at http://www.deloitte.com/us

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