Editors Note: This is the Executive Summary of a report #2103-64 ©1999 by Frost & Sullivan, an international marketing consultant and training company based in London and Frankfurt. Frost and Sullivan monitor the teleommunication industry for market trends, measurement and strategies. Their web address at www.frost.com has executive summaries of additional reports. Further information can be obtained from the web page or by email from Jennifer Minx at jminx@frost.com.

he concept of distance learning has emerged many years ago with correspondence classes. It later evolved into videotapes and other non-real-time training methods. While these learning methods certainly had their place in the overall training process, their effectiveness was relatively low since the self-paced, non-interactive teaching often failed to retain attention of students, resulting in very high dropout rates.

The outlook for distance learning has changed significantly with the advances in the telecommunications and computing technologies that allow interactive, real-time training. The affordability and effectiveness of the new solutions has made them popular among a variety of end user markets. The most prominent users of distance learning solutions include educational institutions (both K-12 and universities), corporate market (including financial institutions, automotive companies, pharmaceutical/health care and others) and government.

Chart 1.1 shows the market segmentation of this study.

Distance Learning Systems and Services Market:
Revenue Forecasts (United States), 1995-2005

Key:
Total = Total Distance Learning Systems and Services Market
Systems = Distance Learning Systems Market
Services = Distance Learning Services Market

Note: All figures are rounded. Source: Frost & Sullivan

Summary of Major Findings
Market Growth, Opportunities, and Total Forecast

Figure 1-1 shows the revenues and compound annual growth rates (CAGR) for the total distance learning markets as well as its two major segments - equipment and services markets. In 1998, the total distance learning market generated $771.6 million in revenues. Over the forecast period from 1998 to 2005, it is expected to grow at a rate of 21.0 percent.

The growth of the distance learning market is affected by the influence of the following market drivers:
• Speed of technological change
• Decline in equipment and services costs
• Access to any type of education
• Growing acceptance of distance learning concept.

The main restraints of the distance learning market include:
• Lack of customer familiarity
• Competition from traditional training methods
• Long sales cycles
• Cannibalization among product and service categories.

The distance learning market is in the development stage, with the number of technology options available on the market and the customer interest in the concept rising quickly. The providers are aiding the demand by supplying a variety of services including help with content development and comprehensive support services. As the competitiveness of the marketplace forces more employers and employees to continue to enhance their skills, the demand for distance learning is likely to grow even more in the future.

Analysis by Major Segment
Distance Learning Systems Market
The distance learning systems market generated $233.4 million in 1998. Its compound annual growth rate is expected to be 22.8 percent during the forecast period from 1998 to 2005. The market is growing rapidly as the advances in telecommunications as well as computing technologies make distance learning simpler and more affordable.

The main drivers accelerating growth of the distance learning systems market are:
• Speed of technological change
• Reduced traveling costs
• Decline in equipment costs
• Widening technology choices
• Existence of mandated accreditation and certifications
• Increasing geographical disparity of U.S. corporations

The main restraints with negative impact on the growth of the distance learning market are:
• Lack of customer familiarity
• Long sales cycles
• Competition for training budgets
• Cannibalization among product categories
• Deployment complexity
• Unclear decision-making authority

The distance learning systems market is growing rapidly, with a number of new developments particularly in the Internet-based IDL (Interactive Distance Learning) and Broadband segments. The satellite segment is highly mature and therefore its growth is much slower. As the number of technology options continues to rise, the competition within the market continues to intensify as more potential customers are considering distance-learning solutions.

Distance Learning Services Market
The distance learning services market generated $538.2 million in revenues in 1998, and the CAGR for the forecast period from 1998 to 2005 is estimated at 20.2 percent. The service options continue to evolve as more services suitable for video delivery emerge. The services with most anticipation for the future include several versions of ATM services and IP services (both narrowband and broadband).

The distance learning services market is expected to anticipate a healthy growth due to the following market drivers:
• Lifelong training and learning grows in popularity
• Access to any type of training or education
• Large K-12 education market is embracing distance learning
• Aid in content convergence
• Declining costs of services
• Growing range of service options

Major restraints include:
• Competition from traditional training methods
• Upfront technology costs
• Insufficient network infrastructure
• Lack of familiarity with content development options
• Service cannibalization
• Low frequency of training sessions in corporate setting

The demand for distance learning services is increasing due to the growing installed based of distance learning equipment as well as increased use of the existing equipment. Among the prominent customers are schools (both K-12 and universities) as well as corporations (financial, industrial, and pharmaceutical) and government.

Distance learning is becoming increasingly more popular and as a result, customers from other vertical markets are likely to adopt distance learning in increasing numbers in the near future. The growing intensity of competition provides an increasing number of service options to customers, allowing them to choose a service that is most suitable for their specific environment.

Competitive Analysis
The distance learning market is very diversified and the competitive structure differs significantly among the market segments. Satellite-based systems and services markets are relatively well saturated and as a result, the competition is very intense, forcing ongoing industry consolidation. Narrowband systems market is well established, although still growing rapidly, and the market leadership is concentrated among the top five companies (i.e., VTEL, PictureTel, TANDBERG, Sony, Polycom). The Internet-based as well as broadband systems markets are still in the development stage, with the competitive structure still evolving and significant changes anticipated in the future.

The terrestrial-based services market is dominated by telecommunications carriers, including major interexchange carriers (AT&T, MCI WorldCom and Sprint) and local exchange carriers (regional Bell operating companies). The ongoing wave of mergers and acquisitions is alternating the competitive landscape, with more M&A activities anticipated in the future.

The content development and delivery services market is still underdeveloped, as most market participants are small private companies with relatively small exposure. The majority of providers focus on the Internet as a delivery medium, but a lot of content is still delivered by satellites as well.

Technologies
The number of technologies suitable for delivery of distance learning is rising rapidly, giving customers a number of options with varying levels of costs and video quality. The satellite delivery through VSATs (Very Small Aperture Terminals) is the most established, but the popularity of DBS for satellite delivery has grown over the last two years. In addition, IP multicasting capabilities are being integrated into the satellite solutions to enable much demanded PC connectivity.

In the narrowband market, the majority of transmission still takes place over ISDN (Integrated Services Digital Network) or private lines. The adoption of H.323 standard has brought upon the interest in using IP (Internet Protocol) for video transport. Pilots of IP technology have been taking place for a couple of years and the technology is slowly moving into full deployments. In another two years, a notable portion of distance learning services is likely to take place over IP.

In the broadband market, ATM (Asynchronous Transfer Mode) is becoming a preferred transmission technology. The older JPEG standard is being replaced by MPEG-2, which significantly cuts the bandwidth required for comparable video quality.

Conclusions
Distance learning market is in the early growth stage, offering significant growth opportunities to market participants. Aside from the satellite-based market, which is already fairly saturated, there is significant room for new entrants to establish themselves and profit from the fast increasing demand for training and learning.

The interest in distance learning is growing rapidly, both in the education and corporate markets, and there are a number of market niches that yet have to be served. By concentrating on a specific vertical market, even a new or a small company can build a significant market presence. Many potential customers are looking for end-to-end solutions, which can be best provided through partnerships with high visibility players such as service providers or training companies. While long sales cycles and limited customer awareness still impede market growth, these issues can be overcome through customer education and improved marketing and sales efforts.

About the Author: Mr. Alpa Shah is a telecommunications industry expert. He may be reached at www.frost.com