Friday
Jan272012
Peak Telecoms
Friday, January 27, 2022 at 10:46AM I threw what I was going to send in this month’s Future of Communications newsletter in the trash. It was good stuff – a powerful essay on why network neutrality can never ever work, and loads of links and comments. I'll save it for another day.
Instead, I had something much more important to say, and didn’t want any clutter in the way of saying it. I want to join the dots on what I’m seeing, and stick my neck out and be provocative. I have reproduced the content of the newsletter here on the blog.
We’re at “Peak Telecoms”.
This is it. Look around you. Whatever you are doing, however you are making money, it isn’t going to get better than this. This industry has hit 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. As this is where the margins come from, the problem is hard to exaggerate. The drip-drip of links 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 are mopping up the bloody remains from the battlefield. Time to pack up. In their place, a raft of “internet-time” start-ups 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!) There’s a few years of catch-up that will let smart operators wring extra services revenue our of feature-starved users.
Meanwhile, telcos are launching “over the top” services to gain and retain customers. There’s about to be an all-out war to become one of the surviving voice and messaging platforms. (Hint: Telefonica are ahead, everyone else is playing catch-up.) The GSMA’s RCS initiative is in intensive care and relatives are inquiring about local funeral directors. Senior execs say it privately, nobody wants to alarm the investors that those future cashflows aren’t so secure after all. 4G voice and VoLTE 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.
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-gen Freephone” product unless they act fast.
Video is booming, but there’s no money in it for telcos, bar 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 years yet, but they know the score.
Whether it is voice, messaging or video, the chain of money 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”, and that is not the real issue. It’s 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. Note that as the largest company on the planet their growth rate is accelerating. Apple may only have 20% 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.
Apple is the star around which much will orbit in future.
Yet Google is growing too, as long as the PC platform holds. 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 in the way. Like your retail bundle.
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 like 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 fibres are the roads. It doesn’t carry very much very far right now, but it will. And with it, the fate of the telecoms industry as constituted today is sealed. Like with the railroads, telcos will carry ever more traffic, and will protect themselved with political power. But the heydays are gone, in the face of a new disruptive model.
Welcome to the real Information Superhighway. I hope you like your iCar.
So what and what next?
We’re at “Peak Telecoms”.
This is it. Look around you. Whatever you are doing, however you are making money, it isn’t going to get better than this. This industry has hit 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. As this is where the margins come from, the problem is hard to exaggerate. The drip-drip of links 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 are mopping up the bloody remains from the battlefield. Time to pack up. In their place, a raft of “internet-time” start-ups 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!) There’s a few years of catch-up that will let smart operators wring extra services revenue our of feature-starved users.
Meanwhile, telcos are launching “over the top” services to gain and retain customers. There’s about to be an all-out war to become one of the surviving voice and messaging platforms. (Hint: Telefonica are ahead, everyone else is playing catch-up.) The GSMA’s RCS initiative is in intensive care and relatives are inquiring about local funeral directors. Senior execs say it privately, nobody wants to alarm the investors that those future cashflows aren’t so secure after all. 4G voice and VoLTE 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.
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-gen Freephone” product unless they act fast.
Video is booming, but there’s no money in it for telcos, bar 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 years yet, but they know the score.
Whether it is voice, messaging or video, the chain of money 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”, and that is not the real issue. It’s 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. Note that as the largest company on the planet their growth rate is accelerating. Apple may only have 20% 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.
Apple is the star around which much will orbit in future.
Yet Google is growing too, as long as the PC platform holds. 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 in the way. Like your retail bundle.
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 like 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 fibres are the roads. It doesn’t carry very much very far right now, but it will. And with it, the fate of the telecoms industry as constituted today is sealed. Like with the railroads, telcos will carry ever more traffic, and will protect themselved with political power. But the heydays are gone, in the face of a new disruptive model.
Welcome to the real Information Superhighway. I hope you like your iCar.
So what and what next?
There’s no need to go and throw yourself off the end of the pier into the welcoming sea quite yet. The existing telco model has a lot of cost to be removed, remains recession-resistant, and has some bright spots that offer growth.
I’d select three:
I’d select three:
1. Move the needle with voice and messaging innovation: How to get past the “telecoms menopause” and rejuvenate growth for these core products through new business models?
2. Manage mobile data growth: How to keep cost, revenue and customer experience in balance -- and avoid creating overcapacity and needless capex to meet growing demand -- by creative business models?
3. Social customers and creating wealth from customer data and analytics: How to extract more value from the customer’s “data footprint”, and what are the emerging loyalty/retention models?
We’ll cover these themes in more detail in future newsletters.
Your first step into this new world is to understand the fundamentals of the new landscape:
0. Subscribe to the Future of Communications newsletter - it's on the right.
1. Familiarise yourself with the voice and messaging problem domain by reading my free white paper “Connect, Interact, Transact” available here.
2. Subscribe to @DAPremium, the premium Twitter feed from Disruptive Analysis.
3. Buy a copy of the new Telco-OTT report from Disruptive Analysis. It doesn’t matter if your corporate research budget doesn’t cover it. Use your own cash, your career needs it.
1. Familiarise yourself with the voice and messaging problem domain by reading my free white paper “Connect, Interact, Transact” available here.
2. Subscribe to @DAPremium, the premium Twitter feed from Disruptive Analysis.
3. Buy a copy of the new Telco-OTT report from Disruptive Analysis. It doesn’t matter if your corporate research budget doesn’t cover it. Use your own cash, your career needs it.
Reader Comments (8)
Amen. I think I've found my long lost twin brother reading this posting. Time for the industry to wake up and smell the coffee, pack it up, tear it down, whatever, but let's move on folks, something better is brewing.
In mid march I am going to Kenya and Uganda, and many economies on that continent are growing rapidly. Many farmers and small entrepreneurs well beyond physical infrastructure do their banking with only their mobile phone. I know more than one (two really) swede that have gone down to east africa to work with telecom infrastructure, and they say that east africa is a growing and interesting market. In the east african cities people are getting better and better off, building/buying new homes, investing savings, doing business and gaining a better life. I am not saying that poverty are gone or that a majority of the people aren't suffering, but that things are getting better. As both east and west africa are getting more and more investors, mainly from asia, and that many many milions of people live on this continent I see a big life line for the telecom industry that can keep them safe a while.
There is a big room to address the resource redundancy in terms of (a) Teleco infrastructure and (b) with the Service Providers cost complacency
Surprised... how come investors are so patient.
The unfortunate thing is that many telecoms still don't understand the customer and customers data as part of the equation. But ISP's and Telecoms are notorious about being terrible at upselling to their customer base. And they need to wake up and provide 'sticky' services to the customer base. Many Telecoms are still going the wrong way, outsourcing key critical customer facing services. 'Why provide email? Let Google handle it!' When you see large telecoms moving in this direction, you say to yourself there is a company that just gave away their future, the customers data, information, loyalty, and the tools that could be used to upsell new products'. So few isps/telecoms have any effective plan to leverage the customer base, and still think the business is only about subscriber counts. We are going to see a consolidation in the industry again, I predict this will be a big year for consolidation in North America, simply because Telecoms do not see any other way to growth. 3% growth in subscrbers per year (pop. growth) and ever decreasing margins will get investors nervous, and just an economy of scale is only going to go so far. ISP's should be thinking about everything from alarm monitoring to advanced messaging, application portals, or even just get those customers on impulse buying.. Anti-Virus, Ring Tones, Pet Monitors... you name it, but start rethinking the business model. It isn't about signing up a subscriber, it is about acquiring a perpetual revenue opportunity.
Spot on post.
Time to bring on the men of fibre.
You are so right, all we need is fat pipes and we can get on with IT.
I disagree with almost every single sentence in this article as well as everyone posting comments. I beyond disagree with it... this is almost silly. At first I thought it was satire.
Telcos and ISPs own all of the spectrum and infrastructure in this country.
The cost of voice and messaging will go negative? ... seriously?
Where do think this magical bandwidth is going to come from? Who is going to regulate it and make sure there is no interference? Who is going to roll out this new network and pay us to use it? Networks cost money to build and maintain.
This is all non sense! Mobile is the future and telcos and investing billions in spectrum and infrastructure.
I am keeping my money in telcos... they are not going anywhere!
... and what is up with this guy saying telcos should be in the pet alarm business? That is not their job. They sell their network and that is what they do. It all about subscribers... they are perpetual revenue.
Unbelievable!
The price of search, maps, email, picture hosting -- all are "negative", in that you have to give away expensive goods and services to attract revenue from advertisers.
The price of messaging services is already heading this way - Facebook and Twitter being the obvious examples. You have to offer increasing amounts of value to the user at zero price to stay in the game.
Communications services are next, but from a very different business model to Google.
Communications services are not next. It will not be free! Who wants ad supported cell phones with suspicious privacy policy. FYI. Google does not provide customer service for the free stuff. They do charge for their business level services of search, maps, email, and hosting! I don't know about you, but I want customer service, reliability, and privacy with my network. You don't get that with ad supported services. Try using Skype on a regular basis and you'll know what I am talking about... plus Skype relies on my 60 per month ISP. So it is not really free is it.