Monday, June 19, 2006

Telecoms - get creative

Peter Cochrane's Blog: Telecoms - get creative
Don't go backwards just because your service is now a commodity
Published: Monday 12 June 2006

So here we are, an industry that was prized and happily operating with greater than 15 per cent profit margins 20 years ago is now looking at the prospect of becoming something akin to the local supermarket.

What is the reaction? Does it start to adjust to this reality by deploying optical fibre to increase efficiency, reduce manning and operating costs whilst releasing even more bandwidth in order to cope with even more competition and slimmer pickings in future?

No! Quite the reverse!! Telecoms actually wants to go back 50 years to an age when time, distance and bandwidth were expensive and chargeable. But I'm afraid the genie is out of the bottle and it ain't going to go back in.

In the US for example we have telcos trying to carve up the net traffic so they can charge a premium rate for heavy users. They actually want to charge the profitable service providers for generating net traffic and users for consuming bits. Ouch! Who us, a two-tier net, a society divided by access speed?

As for the mobile operators - especially those who invested heavily in networks unlikely to break even from their licence loading for many years - they complain that data services are starting to exceed voice but say only voice was 'properly dimensioned' for charging. Worse still, the customer base is using their phones and the networks in ways that were never intended.

Well, welcome to the 21st century!

How about taking a trip to Japan where 16Mbps is the lowest rate broadband provision at $29 per month, and plans are now in place for 1Gbps for everyone at $50 per month. Or nearer home, look at Finland, where wireless-access is profuse, low-cost and often free. If these societies and companies can figure it out, then so can everyone else.

This is not about technology! It is about business models and mindsets. When things become a commodity everything changes, especially the perception and position of the customer base. Competition is a wonderful vehicle and the customer a brilliant driver. Failing to fully understand this can really hurt! Any fixed line or mobile operator that clings to the past, or tries to return there, is unlikely to survive - let alone prosper.

The good news is: in my crystal ball I see rafts of new technology coming along that will accelerate and exacerbate the change. Even better, I see legions of new people and companies that are capable and waiting to accept the challenge. My advice to the incumbent operators is to follow the payload, provide the services and facilities people really value.

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