The Telecoms Landscape
The Telecoms LandscapeI must start with an apology. I said in my initial post that I’d try to post everyday, typically as soon as I said this I got stuck and haven’t posted for the last 4 days. I’ve discovered that when time allows its easier to comment on news and blogs during the day whereas my own thoughts take a considerable time longer to distil and transcribe into Technologydecoded. So I need to revise my initial position and say that I’ll add my own analysis on topics a couple of times a week. I hope you stick with it!
So, I’ve been asked by K3ith “What do you think the telecommunications landscape looks like in 10 / 15 / 20 years, both wireless and wireline and where do you see Google fitting in?”. I have to confess that I’m not a futurologist, well, not 20 years out anyway, but the rest of the question is an interesting one as it brings to light the fundamental shifts that are occurring at the moment.
Not that I want to come over as a consultant or anything ;) (or perhaps this goes back to my Investment Banking days…) but the way I see the future panning out could be radically changed by just a couple of fantastically strategic buys / killer apps hitting the market. I think this is another way of saying that, during a revolution, perceived power changes hands often and that partnerships only last as long as it serves each party. I think we won’t see the technology landscape settle down for another 20 years. By settle I mean reach the market stability seen in the Utilities sector or Financial Services (albeit they face their own upheaval over the next 50 years as the worldwide balance of financial transactions and wealth moves towards China).
Bearing this in mind and with a particularly UK biased view on this question, here are my thoughts:
The first thing to be aware of is British Telecom is at the forefront of the worlds telecoms markets following its bold decision to transition the UK onto an IP based communications network. Other countries (notably Italy) have started to implement changes to their comms infrastructures, but none with the boldness presented by Ben Verwaayen, BT’s CEO, that the UK will have its MPLS (MultiProtocol Label Switching) network by 2008!
As a result the rest of the world is watching to see how BT manages with regards to its successes and failures. While it means these other incumbent telecom companies can avoid some of the pitfalls as well as leverage up on some of the successes, there will be a staggered roll out of a global IP network which will reduce the ‘first mover advantages’ available and allow other players, specifically the Internet players like Google, to come in and try out their own technologies and applications on the more advanced networks before rolling them out on the nascent IP telecoms networks effectively drawing out any customer value before the incumbent telecoms companies can utilise the networks they’ve put in.
However, let’s bring it back to the first 5 years. Rolling out the IP network in the UK is going to be incredibly expensive and complex. BT has put a spend of £10bn on rolling out this technology over the next 3 years. As such the old PSTN (Public Switched Telephone Network, using copper wire and analogue signals) will run in parallel with the IP roll out for some time to come. As this transformation keeps BT busy, the rest of the market will start to consolidate as companies vie to use the new technology to their best advantage while there’s still considerable value to be had. This consolidation is likely to go on between the smaller telecom providers and ISPs. The real threat over the next 5 years comes from the likes of Google, Yahoo and MSN.
These internet behemoths have the eyeballs of 60%+ of all internet users, that’s a billion people. As I mentioned in my last post on Google (Technology Decoded: The strength of Google), Google wants to be the equivalent ‘webtop’ to Microsofts desktop. This is an incredibly powerful position to be in and particularly dangerous for the telcos, let me explain.
While rolling out IP networks is a relatively new thing, especially on a massive scale, the codex and protocols that work over the network have been around for a while. Google et al have and are creating customer web applications (Google Pack, Yahoo Konfabulator) which are easy to download, useful, fun and free! These applications and services (Google Maps, MSN Hotmail) are advertised globally, across culture and language every day, something BT and the other incumbents are incapable of doing. As a result it is Google et al which stand to take any value in the communications space, they are the companies which we might deal with in the future for our video and voice calling rather than the ‘old world’ telecoms companies.
There is one other reason Google et al present such a threat, telecoms companies by their very nature, are full of engineers, mathematicians, computer scientists etc. This is great for creating a telecoms company and shit if you want to address your products and services to the customer. The internet players are the other way round. They recognised that the only way to get eyeballs and concurrency on their sites was to please the customer and design the technology to achieve this, technology based on IP principles which run on today’s telco systems as well as tomorrows.
For telco companies to compete against the internet players in a IP world means they have to go through a cultural paradigm shift to meet the internet players head on and gain the time and eyeballs of the consumer.
While it is difficult for me to see how the telco players are going to win this battle, all is not lost. Telcos are trying to engage with customers and a fighting their corner in this area. However, they do have one advantage, much akin to the tortoise and the hare analogy. No matter whether your Google, MSN, Yahoo, eBay or any of the other myriad internet players, you all HAVE to use incumbent telco infrastructural backbones to move your data about. Google wouldn’t exist if it wasn’t for BT’s cables, pipes, routers and gateways bringing their data packets to your computer. Even if Google keeps growing and wants to put in its own country infrastructure, no government is going to allow it.
For the telcos to increase their value and remain technology companies rather than just another Utility company, they will need to tap into creating their own web applications and services. Except these have a difference. They will not be aimed at the consumer, because, as we know, the internet players have this stitched up, they will aim them directly at Google, Wanadoo, AOL etc. These will be network level applications and services which the internet players will use enabling even better web application and services for the consumer AND if the telcos can negotiate deals based on Transaction pricing “there be life in dem dare bones yet lad”.
So, as the IP network is rolled out and the internet players use more of it, the telcos will be recompensed accordingly. Even if Google sets up a worldwide WiFi network, the backhaul still goes over AT&T, France Telecoms and BTs infrastructure. In return, the telcos can charge for this usage, which keeps them alive, which, while internet companies will come and go (often with the fashion of the moment) telcos longevity is immutable as the only way to transfer others data around.
posted by blueboyeddie @ 2:02 pm
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