May I 2007

Fredric Morris, Editor-In-Chief, Connect-World
Fredric Morris

Survival – a reality show

Pity the poor operator. Once the rulers of all they surveyed, they now seem like cornered lions – big, strong and dangerous yet, to be sure, but on the defensive and backed against a wall.

Telco operators have advanced cases of pipeophobia; they are deathly afraid of the pipe, or rather becoming mere operators of big fat dumb cheap pipes, BFDCPs, of ending up as simple bit pushers. Bit pushing can be a good business, but there is little growth or margin in it.

Voice is the telcos’ core business, but they are not safe even in this market. Internet-based competition such as Skype, cable companies offering their own voice over IP (VoIP) services and worse – mobile operators – are aggressively gouging away at the core and winning. Telco voice revenues and market share are steadily decreasing.

They are losing ground in their own market, so the telcos are trying to shift the battlefront and compete with the cable companies by concentrating on the residential market and offering entertainment.

Content, content or content – they’ve got a great choice – is what operators hope will save them from a BFDCP fate. By concentrating on the residential market, investing heavily in the sort of brawny broadband that Internet TV (IPTV) demands and competing with the cable operators, they hope to regain the ground they have lost in voice revenues.

It’s an interesting plan, but some of the lions are sure to become dog food. There are many experienced, successful, content providers out there, and although operators might have courage, they lack some of the weapons this battle demands – they totally lack experience lining up and negotiating cool, audience grabbing content, content, building play lists and selling entertainment. I wonder how they plan to battle the Internet service providers and players of all sorts who are also eyeing this market. Google/YouTube, Amazon and Yahoo are among the many companies with deep pockets and a history of successful innovation said to be interested in this market.

The operators have some strong points as well. They own millions of customers; they have big networks with millions of subscribers that reach just about everyone. Their infrastructure and network topology facilitate interactive services, digital video recorder services, programme time shifting, video on demand and a host of other services without the need for, or cost of, a set-top box. It will be interesting to see, how many of the operators can effectively use these and other advantages, – they have many, to beat the cable companies at their own game. Succeeding with content, with entertainment, takes better marketing and organisational skills than succeeding with voice.

The move to content will be expensive. Upgrading to broadband robust enough to deliver high definition IPTV and fast data to a five-TV-everyone-has-a-PC family will not be cheap. The money and resources spent on this shift will – necessarily – cut the amount available to invest in enterprise systems and services.

Telcos have suffered as many enterprise networks have shifted to commodity priced IP-based communications and away from traditional, higher cost, virtual private network circuits. Even so, carriers have some real strengths and natural advantages in this sector. The telco’s central position makes it easy for them to control and simplify the administration and security of an enterprise network. It is a significant challenge for companies with employees, operations, offices and clients throughout the world to maintain, administer their networks and keep their communications safe and secure. Big carriers, of course, have been doing just this for years and are getting better and better at it. The telcos sit like spiders at the heart of a network built with increasingly intelligent equipment and run by astoundingly sophisticated software. They have a view of the entire network and can effectively head off a wide variety of threats and even counter hard to manage denial of service attacks. They can also effectively administer and maintain communications worldwide.

Operators are hoping for an end to net neutrality, the equal treatment of all users on the Internet, so they can cash in on the investment they are making to upgrade their networks. Big users such as Google, Yahoo and the like are – no surprise – defending net neutrality tooth and nail, and most of the world’s users are behind them. Despite all the flag waving and loud avowals of save-the-Net ideological purity, the big guys just want to save a buck. Personally, I like the Net the way it is, but the operators have a point, ‘there is no free lunch’, someone has to pay for the upgraded services. Operators have to upgrade their networks to provide a reliable pipe for their high definition IPTV services and they don’t like the idea of giving their competition a free ride.

Most of the arguments for and against net neutrality can be summed up quite simply. First there are deeply felt arguments welling up from the wallet – operators want users to pay for advanced services and the users don’t. Second, there are the innovators. Net neutrality is said to encourage innovation, after all, on today’s Net if you have an idea you can put it to work. Just do it; there is no one to ask, nothing to approve nothing to pay for.

Intelligent networks, using deep packet inspection and other techniques, can classify much of the traffic that flow through. Without net neutrality, intelligent networks might well levy surcharges on heavy users – or anything they suspect is commercial. Without net neutrality, operators will have more money to build better pipes, guarantee quality of service and build functionality into the network to automatically handle some of the functions that applications must now control, but innovation might be stifled. With net neutrality, the argument goes, network growth will slow, service will degrade and the new innovated services will be severely handicapped.

At best, both arguments are only half-right; even without net neutrality, free markets and innovation will probably drive network costs down. With net neutrality, technology and innovation will drive costs down. In the long run, bandwidth – no matter what the model – will become a low-priced, utility-like, commodity. Innovation, as long as the need exists, will continue. It might slow a bit in the short term, it might even change direction, but if an idea is good and a real need exists, experience tells us there will be a way to overcome the obstacles on the way to the market. The demand for more and better telecom services is always there. With or without neutrality, someone, somewhere, will invent a better, cheaper way to meet the need – and rip whatever the current market model might be to shreds.

Technology is the key to the issue. If the networks can charge, they will build increasingly intelligent networks – first to figure out who they can charge more and why – but also to do more. If they can’t charge for privileged access and transmission, they will still build intelligent systems and charge for additional value-added services. With intelligence embedded in the network, carriers can speed service handling, route content intelligently using XML tags, provide special services for applications, enhance network security. In the end, the networks will charge more to introduce new services; the service sets might change, but the question really is will they just charge more or a lot more.

Just the thought of intelligent networks has equipment vendors dancing in the street. In truth, just about any disruptive technology keeps them up at nights dreaming about massive new markets. The problem is that massive new markets, as we have seen again and again, tend to force massive realignments in the sector. As service companies merge, consolidate and fall by the wayside in the struggle to survive the forces unleashed by disruptive technologies, equipment suppliers lose traditional customers, potential buyers get bigger and fewer, and competing equipment suppliers are forced, themselves, to merge or die.

Our next Connect-World Asia Pacific Issue will be published later this month.

The issue will be widely distributed to our reader base and, as well, at shows where we are one of the main media sponsors such as: IIR Telecoms & Technology (28-31 May, Singapore), Broadband World Forum Asia (5-8 June, Beijing), CommunicAsia (19-22 June, Singapore) – Indo ICT 2007 Expo Forum (11-13 Sept, Jakarta), and Telecomp Vietnam (19-22 Sept, Hanoi).

The theme of the upcoming issue is: Next generation strategies – a look at the new environment part II: – regulation, convergence, new technology and the enterprise.

The changes brought by today’s information and communication technologies have unsettled the sectors involved and raised a series of profound questions that policy makers and regulators throughout the world are struggling to deal with. Business users are finding that buying technology and learning to use it is just the first step; to really take advantage of the new technologies and tackle the competition they often have to re-invent their processes, systems and products – even the corporate culture and the company itself. Governments and institutions, like businesses, have to re-think their systems and services in terms of what the new technologies can do, but the payoff in better services, greater efficiency and reduced costs can quickly re-pay the effort. The new technology is infiltrating itself into the daily lives of people in the world’s great cities and in its remotest reaches, bringing basic communications, entertainment and new life-changing educational, medical and business services.

Enterprises of every sort, manufacturers, systems developers, content providers, distributors, operators, carriers; each and everyone in the sector will feel the change as will, indeed, those that use the technologies. New business models, new partners, new marketing, new competition will be the rule.


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