The telecom industry has reached its peak. This is it. Look around you. Whatever you are doing in telecom, however you are making money in the field, it isn’t going to get better than this. This industry has acquired its maximum share of the economy. We are the digital railroad business at the height of the railroad barons. The only way now is down. We’ll see maybe one or two more mini-booms, a few more troughs, but the long-term trend has just gone into reverse.
What’s going on? Let’s gather the evidence
The telco voice and messaging business is on the verge of going into meltdown. Since this is where the margins come from, the problem is hard to exaggerate. The drip-drip of articles about declining voice and messaging volume and revenue is becoming a small stream. Even mobile telephony is losing ground in competition to asynchronous messaging. Twitter and Facebook message volumes are exploding, and SMS is beginning to sink. Termination and roaming are endangered species, hunted by packs of voracious regulators. There is no way back. When I started writing Telepocalypse back in 2003, the only thing I got wrong was the timing.
The traditional vendors are dying, and this is disrupting the telco supply chain. Their multi-year cycle times are hopelessly mismatched to the environment. The federated, standards-based, interoperable services game is coming to a close. Huawei is mopping up the bloody remains from the battlefield. Time to pack up. A raft of “internet-time” startups are taking their place, filling in the missing features that decades of neglect of the voice and messaging business have left behind. (You mean I still can’t record and search my calls in 2012? Wow!)
If you can’t join them, beat it
Meanwhile, telcos are launching over-the-top services to gain and retain customers. For example, check out Bobsled from T-Mobile, Jajah from Telefonica, and 050 Plus from NTT. There’s about to be an all-out war to become one of the surviving voice and messaging platforms. (Hint: Telefonica is ahead. Everyone else is playing catch-up.) The Global System for Mobile Associations’ Rich Communication Suite initiative is in intensive care, and relatives are inquiring about local funeral directors. Senior execs say it privately. Nobody wants to alarm the investors by letting them know that those future cash flows aren’t so secure after all. VoLTE and 4G voice is a mess that preserves the worst of GSM telephony, without giving the user any upside, and leaves an open goal for over-the-top alternatives like Skype.
I strongly believe the business model for voice and messaging is about to go into reverse. The value is going to drain out of minutes and messages charged to users. Instead, enterprises will pay for features that make customer contact efficient, effective and secure. Where Facebook has fumbled, others will fill that gap and become fit-for-purpose B2C channels. Voice and messaging won’t just drop to a price of zero. It will go negative. Users will be courted to lodge their identity and presence with new communications and commerce intermediaries, who make money “upstream.” Once the process starts, it will become unstoppable.
Telcos won’t get a chance to deploy the next-generation free phone product unless they act fast.
Video and data: volume without profit
Video is booming, but there’s no money in it for telcos, except for a lucky few who grabbed the sports rights. The cable business model is now being unbolted from its foundations too. The talents of acquisition, bundling and distribution will serve the cable companies for a few more years, but they know the score.
Whether it’s voice, messaging or video, the money chain from application to transmission to infrastructure is breaking down.
Data volumes are soaring, but again telcos have failed to master the brilliant packaging of voice and SMS with internet services. Apps stores aren’t services stores. Costs are out of whack with revenues, because pricing and network policy is managing “bandwidth.” But that is not the real issue. The real issue is how customer experience is linked to contention, and no telco knows how to manage that adequately today. Given high fixed costs and low marginal costs, some player will always want to offer unlimited plans at unprofitable prices. It’s a not-for-profit business keeping iPhones and iPads connected.
So where’s all the money gone?
For sure, Apple is surging. Apple may only have 20 percent of the smartphone volume, but they have a huge share of the profit. This is a fundamental shift in the balance of power in telecoms. All the APIs that really matter are going to be decided in Cupertino. Don’t be deceived by Android’s volumes. There’s no money there — it’s a dollar-destroyer.
Although Apple is the star around which much will orbit in future, Google is growing too, as long as the PC platform holds. And Amazon is showing how it’s hard to fake infrastructure, and nobody is going to challenge them anytime soon.
Telcos aren’t going to be able to divide-and-conquer these platforms. The locus of power has shifted fundamentally. The value creation is outside the network.
It gets worse.
These players may start to aggregate assets and wholesale access to build AppleNet, GoogleGlobe and AmazonRiver to connect merchants to eyeballs and wallets, without any other gatekeepers, such as a telco retail bundle, in the way.
It gets worse.
Telcos as profitable networked cloud services providers? You’ve got to be kidding me.
It gets worse.
Ericsson has positioned itself as what my colleague Dean Bubley refers to as a dominant “under the floor” player. It is potentially a king-maker for telcos, controlling the delivery platform from which their operations have to be run. Networks are just large, distributed supercomputers — and Ericsson is the new IBM. Nobody got fired for choosing them. Their power is ominous for operators.
It gets worse.
Home networks don’t need service providers. You just buy a box and plug it in. Street-level networks don’t either — you can build a simple resilient mesh. Nor do town networks that join the kids with their school. We fundamentally don’t need communications service providers to manage data transmission. As long as we have a means to fund infrastructure, just as we manage with roads, we can do it for ourselves.
This is the beginning of the end of the Information Superrailroad, where all the bits are scarce and billable. Broadband ISP service is a branch line to nowhere.
Unlicensed wireless is the automobile, and local open fibers are the roads. It doesn’t carry very much very far right now, but it will. And with it, the fate of the telecom industry as constituted today is sealed. Like with the railroads, telcos will carry ever more traffic, and will protect themselves with political power. But their heyday is over, and a new disruptive model has emerged.
Welcome to the real Information Superhighway. I hope you like your iCar.
Martin Geddes is founder of Martin Geddes Consulting Ltd. He runs public workshops on voice innovation and strategy. This article was originally published on Geddes’ site, Future of Communications.
Showing posts with label Declining Telco Revenues. Show all posts
Showing posts with label Declining Telco Revenues. Show all posts
Monday, February 27, 2012
Tuesday, July 19, 2011
How Telcos Can Contend with Cloud-based Computing
“We’re going to move the center of our digital life to the cloud,” Apple CEO Steve Jobs said recently when launching iCloud and joining the mushroom of cloud services driving the next big step in the growth of the digital economy.
It’s become clear that cloud services will have a profound impact on every business. All of the ingredients for rapid take-off are now in place as smart phones and tablets rapidly proliferate, networks expand and services go virtual. You’d think that would make telecom operators smile – but actually, many are crying in their beer over the investment needed to cope with the massive growth of information coming just when their traditional high-margin voice and messaging services are declining. With five out of every six people on the planet having a phone, subscriber growth is slowing – while competition is rising and new services are going ‘over the top,’ delivering cost, not revenue.
Communications services are now following Moore’s Law, which originally described the doubling of computer power and halving of its price every two years. But just as Intel made a fortune out of that law through innovation and economies of scale, so can communications companies if they get smart.
There are more than 1,000 telecom operators worldwide, each with their own geographic footprint. After years of regulators pushing network competition, basic economics is now making market consolidation inevitable. As we’ve seen in the U.S., telcos everywhere are merging, sharing infrastructure and joining forces to leverage buyer power. Those who don’t get it will be left in the digital slow lane.
But network economics aren’t the only issue for operators. While telcos have billions of customers and strong brands, those strengths are offset by the growth of smart phones, tablets and digital services. Making calls and sending texts are just a small part of the growing digital mix. Increasingly, the consumer is seeing Android or Apple as their telecom brand. Buy a Kindle and the network is bundled – you see Amazon, not AT&T.
So where does that leave the telcos? Margins squeezed, costs rising rapidly, brands dumbed down and stock prices unexciting. But this $1.5 trillion industry still generates cash faster than a printing press. And while it’s easy to be gloomy, there’s plenty of life in the digital dog yet. But the dog needs to wake up fast and start barking.
To succeed, telcos have to move in two simultaneous directions. They have to look inward, rapidly exploiting economies of scale and making major shifts in operational efficiency. And if they want to avoid purely becoming a wholesale ‘behind the scenes’ player, they also have to simultaneously look outward to the market and strengthen their brands, their customers and their products.
The digital economy works by simply and cheaply exploiting a truly global marketplace – not just billions of people but trillions of devices. Cost and reach will drive this consolidation with a few, bold operators becoming very large, multi-geography carriers providing the 'central nervous system' of that economy with ubiquitous, fast, reliable communications backed by security, authentication and services like payment handling, billing and customer care. Despite the best efforts of net neutrality dreamers, we will see the emergence of different levels of service at different prices for those people who are prepared to pay for it.
But what is the role for communications players in developing digital services to ride across that infrastructure and leverage their customer bases and brands? Outrunning Amazon, Facebook and Google is not an easy task, so what position should they take?
The answer is fairly simple. Phone companies enable billions of conversations every day, but they don’t do the talking. The digital economy is going to be about trillions of commercial transactions every day from downloading your newspaper to your car telling the repair shop that it needs more oil. The role of the digital telco should be the same enabling role; not trying to invent all the services but providing an easy-to-use, go-to-market platform for huge numbers of digital service partners.
To do that, telcos need to see digital service providers as their partners, not the enemy. They have to learn how to bundle those services into appealing packages and see both the end user and the digital service provider as customers. Above all they have to think globally and figure out how to provide cloud-based services anywhere, anytime.
Operators cooperate every day in the phone business – calls reach billions of customers seamlessly and everyone gets paid because internationally agreed standards allow many piece parts to be federated into one seamless end-to-end service. A global digital marketplace requires the same standards, openness and transparency or it just won’t work. Remember pre-Internet email systems or SMS where you could only send a message to someone on the same system? Only the nerds used them.
Defining those standards is pretty straightforward, provided there is willingness to do it, but right now too many players have their heads down and think that being different gives them an advantage. They differentiate on the wrong thing: open up a digital marketplace and everyone makes money; make it closed and only a few platform players like Google and Apple will play.
Nobody owes the telcos a living, but with a vibrant, forward-looking industry, the economic and human benefits of communications – now reaching almost everyone on the planet – will seem to be just the first baby step in the development of the global digital marketplace. But it must be open, it must be innovative, and it must get a move on.
(Source: Keith Willetts, Chairman, TM Forum )
It’s become clear that cloud services will have a profound impact on every business. All of the ingredients for rapid take-off are now in place as smart phones and tablets rapidly proliferate, networks expand and services go virtual. You’d think that would make telecom operators smile – but actually, many are crying in their beer over the investment needed to cope with the massive growth of information coming just when their traditional high-margin voice and messaging services are declining. With five out of every six people on the planet having a phone, subscriber growth is slowing – while competition is rising and new services are going ‘over the top,’ delivering cost, not revenue.
Communications services are now following Moore’s Law, which originally described the doubling of computer power and halving of its price every two years. But just as Intel made a fortune out of that law through innovation and economies of scale, so can communications companies if they get smart.
There are more than 1,000 telecom operators worldwide, each with their own geographic footprint. After years of regulators pushing network competition, basic economics is now making market consolidation inevitable. As we’ve seen in the U.S., telcos everywhere are merging, sharing infrastructure and joining forces to leverage buyer power. Those who don’t get it will be left in the digital slow lane.
But network economics aren’t the only issue for operators. While telcos have billions of customers and strong brands, those strengths are offset by the growth of smart phones, tablets and digital services. Making calls and sending texts are just a small part of the growing digital mix. Increasingly, the consumer is seeing Android or Apple as their telecom brand. Buy a Kindle and the network is bundled – you see Amazon, not AT&T.
So where does that leave the telcos? Margins squeezed, costs rising rapidly, brands dumbed down and stock prices unexciting. But this $1.5 trillion industry still generates cash faster than a printing press. And while it’s easy to be gloomy, there’s plenty of life in the digital dog yet. But the dog needs to wake up fast and start barking.
To succeed, telcos have to move in two simultaneous directions. They have to look inward, rapidly exploiting economies of scale and making major shifts in operational efficiency. And if they want to avoid purely becoming a wholesale ‘behind the scenes’ player, they also have to simultaneously look outward to the market and strengthen their brands, their customers and their products.
The digital economy works by simply and cheaply exploiting a truly global marketplace – not just billions of people but trillions of devices. Cost and reach will drive this consolidation with a few, bold operators becoming very large, multi-geography carriers providing the 'central nervous system' of that economy with ubiquitous, fast, reliable communications backed by security, authentication and services like payment handling, billing and customer care. Despite the best efforts of net neutrality dreamers, we will see the emergence of different levels of service at different prices for those people who are prepared to pay for it.
But what is the role for communications players in developing digital services to ride across that infrastructure and leverage their customer bases and brands? Outrunning Amazon, Facebook and Google is not an easy task, so what position should they take?
The answer is fairly simple. Phone companies enable billions of conversations every day, but they don’t do the talking. The digital economy is going to be about trillions of commercial transactions every day from downloading your newspaper to your car telling the repair shop that it needs more oil. The role of the digital telco should be the same enabling role; not trying to invent all the services but providing an easy-to-use, go-to-market platform for huge numbers of digital service partners.
To do that, telcos need to see digital service providers as their partners, not the enemy. They have to learn how to bundle those services into appealing packages and see both the end user and the digital service provider as customers. Above all they have to think globally and figure out how to provide cloud-based services anywhere, anytime.
Operators cooperate every day in the phone business – calls reach billions of customers seamlessly and everyone gets paid because internationally agreed standards allow many piece parts to be federated into one seamless end-to-end service. A global digital marketplace requires the same standards, openness and transparency or it just won’t work. Remember pre-Internet email systems or SMS where you could only send a message to someone on the same system? Only the nerds used them.
Defining those standards is pretty straightforward, provided there is willingness to do it, but right now too many players have their heads down and think that being different gives them an advantage. They differentiate on the wrong thing: open up a digital marketplace and everyone makes money; make it closed and only a few platform players like Google and Apple will play.
Nobody owes the telcos a living, but with a vibrant, forward-looking industry, the economic and human benefits of communications – now reaching almost everyone on the planet – will seem to be just the first baby step in the development of the global digital marketplace. But it must be open, it must be innovative, and it must get a move on.
(Source: Keith Willetts, Chairman, TM Forum )
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