May I 2008

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

Good business in a digital world

Recently, I have read and thought quite a bit about how companies will have to rethink their business to survive in the age of ICTs and the global economy. I have also been closely following the dilemma of telecom service providers whose traditional voice-driven business models seem doomed to follow prehistoric creatures into the tar pits.

Telecos, the world over are looking for a magic business model they can mount and ride into a perpetually sunny, high ARPU, future. I’ve never heard of a telecom service provider – let’s just call them all telcos here, it’s simpler – that only wants to drift along providing commodity services. To provide more advanced, non-commodity, services and wrest business from an ever-wider range of competitors they have to invest in IP-based next generation networks (NGN).

There is a good business case made for NGNs. NGNs are high-tech competitive weapons. NGNs cost less to build, operate and maintain than traditional networks. NGNs can more easily meet demands for greater, far greater, bandwidth. Given their IP base, NGNs provide a far more flexible platform for innovation and make it much easier to implement and bring advanced new services to market. All of these claims are eminently correct. Nevertheless, I wonder if the advanced applications telcos speak of will prove to be more than short-term stopgaps.

When pushed, telcos speak confidently of the service/content/application future – and they do their best to believe it; when squeezed there is very little juice in their replies. Traditional revenues are slipping and many telcos will have a problem finding new revenue sources. Data is picking up some of the slack, but there are many reasons to believe that most data and content based services will eventually slide down the slope to commodity land. Telcos, both fixed and mobile, rarely, very rarely, control content or even applications. Most telcos provide little more than a transmission pipe and a billing structure for content and applications providers. In truth, most telcos, even the newest, still think like utility providers; few have a notion of what an audience is or what drives a business to consume.

Wireline has seen better days; it is stagnating or declining in some parts of the world. Broadband is holding back the losses and dreams of triple or even quad-play to stave off depression. But I cannot see content, even IPTV, in the role of saviour, there is too much content and too much competition. Too much of anything in a market can transmute golden products into low cost commodities.

Mobile is still growing. Everyone talks about mobile data’s rise; revenues are growing steadily, at least for now, but commodity drift with flat-rate deals is setting in. Sure, we are seeing more cable and Internet-type content and services, but few new or exciting made-for-mobile services – with the important exceptions of location-based services and mobile money.

Telcos, both wired and wireless, are fighting to hold and gain customers and build revenues. Most new services simply deliver someone else’s content; with few exceptions, there is little if any value added.

Telcos still make good money doing what they have always done best, fetching and carrying the words, content, whatever, of others – but they have few truly unique services, and few winning propositions of their own except transport. Mobile operators in much of the world are riding the wave; there are still large pools of potential subscribers to conquer so they are often blind to the danger of becoming tomorrow’s thin-margin commodity providers. They are in a bind, the technology that makes them, breaks them.

In a digitalised world, anyone can offer the same service. Anyone can mount a virtual network. Anyone can buy content. Anyone can compete on the playing field of their choice; pygmies can battle giants and Davids can slay Goliaths. In fact, any service can be commoditised. As independent filmmakers used to say, ‘all you need is an idea in your head and a camera in your hand’. Today, all you need is an idea in your head and a good broadband connection to the Net’.

Many years ago, I read – I have forgotten who said it – that there is nothing that someone cannot make more cheaply and worse and sell for less. The words are not exact, but the meaning is. At the time, it was true. Today, outsourcing – perhaps just ‘sourcing’ would be more accurate – has turned this proposition on its head. There is little that cannot be bought for less, but with better quality, somewhere in the world. This is less of an exaggeration than many might think.

The jam the telcos are in is not unique. Almost everyone, almost every company, can easily find itself in the same position. Digitalisation is the great commodity-maker; the Internet has levelled the market. No matter what the line of business, anyone, anywhere in the world can play the game – and one needn’t be big to do it. Anyone with an idea can outsource production and services – their entire supply chain, marketing, distribution and more, if need be – and go head-to-head with the giants in any niche they choose.

The telcos are invading everyone’s turf, and having their own invaded in turn. They have some natural advantages, certain core strengths, but they have never learned how to apply them imaginatively with constant creativity and updating of their offerings. It isn’t an easy task.

For individual clients, until someone comes up with a truly new idea, except for targeted advertising, telcos seem fated to be little more than commodity-pushers – the pipes and billers for services others own. Telcos will be perpetual percentage-taking middlemen, until someone discovers how to cut them out of the chain.

The telcos have done better with larger companies, providing them with sophisticated services that the companies find themselves too hard-pressed to handle themselves. Every telco is competing for the big clients; this lets clients drive hard bargains, so margin will tend to be low. By providing highly personalised increasingly complex services, by becoming so vital to and interwoven with their client’s daily routine, telcos can build margins and do well. Even so, they must watch the competition and constantly upgrade their services.

If I were a telco looking for a new market where I could really add value, build loyal customers and build revenues, I would go after the micro to mid-sized enterprise segment.

Smaller companies have fewer internal resources so, in addition to specialised communications services, they also need a wide variety of reasonably priced business services. Telcos, especially the larger ones, have the size and scale – not to mention the experience of running their own highly complex operations – to offer a wide portfolio of mix and match services to smaller companies, some telco cost-centres might well serve as the models for service providing profit-centres.

Anyone who has ever worked with both large and small companies knows that small companies have to deal with most of the same basic functions as large ones, but they have far fewer resources and far fewer specialists to handle each function; the smaller the company, the greater the number of functions each employee must assume. There is so much information and so many services on the Internet that smaller companies often finding it difficult to find, contract, monitor and administer the services they need. Telcos could offer smaller companies a portfolio of online ‘meta-management’ services – services that provide higher-level integration of other service providers’ offerings. If they charged on an affordable per transaction basis, they should be able to capture, keep and grow a great number of clients.

I don’t know if any such a service yet exists, but if I had a small company, I would be overjoyed to have meta-management systems of the sort big companies use to tie everything together into a coherent understandable whole. I would like a telco that tied all my internal information together with the information from all the external services I used and, perhaps, provided a few others I needed. An affordable system that synthesised the data received from all sources from accounting to supply chain to sales, and combined it with local market and economic data and offered alerts and practical guidance based on industry best practices might not be easy or cheap to develop, but it would offer long-term growth and revenues for users and telcos alike.

It sounds complicated and it is, but no more complicated than what many larger companies already have internally – and small companies could really use it.

Telcos have the scale to develop and operate meta-managers on a transaction basis. It is a good business opportunity. Unlike the individual consumer whose budget is relatively fixed, these systems can help companies grow; as they grow, their transactions, loyalty and revenue generating potential will grow apace. That’s good business!

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Our next Connect-World Europe Issue will be published later this month. This edition of Connect-World will be widely distributed to our reader base and, as well, at shows where we are one of the main media sponsors such as: Sviaz / Expo Comm (14-18 May, Moscow), FT Mobile Media Conference (15-16 May, London), Wimax World Europe (29-31 May, Vienna), and Von Europe (11-14 June, Stockholm).

The theme for this issue will be, The evolving ‘Net’ – Rising to the challenge of rising use.

When speaking of networks, conventional wisdom and traditional business models no longer work as they did. The lines are blurring in the fixed, mobile and even broadcasting markets. Wired networks now handle traffic once thought suitable only for wireless and wireless is substituting wired in a broad range of applications. Seamless handoffs between wired and wireless networks –and,  indeed, mergers, partnerships and consolidations bringing together networks and players of all sorts – further confuse the once prettily organised networking landscape.

This issue will examine what these changes in technologies and the market mean for the sector. How can the residential and business consumer best be served? What does the future hold for network operators of all types?

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