2.2.4 Horizontal integration

Horizontal integration involves convergence between two or more of the four different branches of the infocom sector: IT, telecom, broadcast and other media (including film, music, newspapers, and other media not being a part of the IT, telecom and broadcasting sectors).

The moving boundaries between telecom and related sectors are best illustrated through the use of the framework depicted below. The table distinguishes among the aforementioned four different branches of the ICT sector. Each of these sub-sectors is divided into three different layers representing different parts of the value-chain: content/services, transport/software and equipment/hardware. The importance of the three layers differs from sector to sector. In the telecom sector the transport layer is the most important, while the content layer is the most important in ‘Other media’. The equipment/hardware layer is most important in the ‘IT sector’, but is also important in the ‘Telecom’ and ‘Broadcasting’ sectors.

Convergence / integration and divergence / disintegration

Source: A. Henten, R. Samarajiva & W.H. Melody: Designing Next Generation Telecom Regulation: ICT Convergence or Multisector Utility? Regulate online.org 2002.

Convergence can take place in one or more of these three levels. Although they are interrelated, convergence at the content/service level does necessitate convergence at the transport level (network convergence), and convergence at the transport level does not necessitate convergence of services.

The Internet is the most prominent example of a service combining elements from all of the four sub-sectors. The Internet provides a common platform on which IT services, telecom services, broadcasting and other media services can be provided. Moreover, digitalization of content has made it easier to provide the same content on different platforms.

Mobile services are not convergent services as such, but mobile has created a new sub-sector, which in some respects can be seen as a part of the traditional telecom sub-sector, but in other respects represents an entirely new industry. Moreover, some mobile services, such as SMS and mobile broadcasting, services combine elements from ‘Telecom’ with elements from IT and Broadcasting. 

Examples of convergent services

Digitalization of voice and other communication services implies that it is becoming possible to separate networks and services, and many different services can be handled on the same networks (network convergence).

One of the first examples of this was the provision of telephony sharing infrastructure facilities with cable broadcasting networks. Later on, Internet access and voice telephony via cable modems were also developed. This has led to the introduction of a new business concept, where all fixed residential communication services are provided in the same cable (triple play). Several different kinds of players populate this market: Cable companies upgrade the broadcast networks to include interactive services like voice telephony and Internet, and telecom operators offer broadcast of TV and radio via xDSL broadband connections. In addition to this, optical fiber connections are being offered by electricity companies and other new entrants. This development can be observed in the US, in Europe and in Japan. Later on, it can be expected that triple play services are provided though the use of Wi-fi or other wireless connections.

The concept of triple play services demands heavy investments in network infrastructures, but other types of convergence are less demanding in this respect. Convergence between radio and the Internet enables an extended reach of both services, even though broadband services are not available. If 3G is becoming as popular as 2G services are today, mobile broadcasting may also become relevant in areas with limited connectivity.

These trends do not imply an immediate unification of the markets for four different sub-sectors. Different services will be transmitted on a number of competing networks using different technology platforms (e.g. wired and wireless). However, as seen in the section on network innovations, each type of network will have its own comparative advantages in providing particular services in a particular environment. Although a unified pure optical network providing all sorts of communication services may be the optimum solution in the long run, this will not materialize in the immediate future, particularly not in low and middle income countries.

The competition between network types will be shaped by the availability of existing network structures as well as demographic factors such, as density of customers and the demand for particular services. It is a regulatory challenge to ensure a fair competition without favoring particular technologies. If not properly designed, regulation may skew the competition between different networks.

Markets will converge in the sense that different networks will compete in provision of particular services such as Internet provision.  In the long term, however, it is possible that at least all fixed services will be transmitted via one unified network.