Wednesday, June 4, 2014

How Telcos Are Like Apple

Nobody would argue that a large tier-one telco can move as fast, and be as agile, as most device or application providers. There are many reasons, including the time it takes to build or upgrade physical facilities requiring construction work.

But a “monopoly” fostered culture plays a role as well. Still, tier one service providers are more agile than some suspect, and have faced key changes in revenue model that are similar to the challenges Apple faces in migrating from personal computers to music players to phones and tablets.

There are other important implications. Telecommunications services are heavily regulated, compared to device and application markets, further imposing limits to agility. Apple, Google, Amazon or Facebook can jump instantly into new markets and abandon older markets if they choose. That is not possible, or easy, for a tier-one communications provider.

Apple doesn’t have to ask permission to change chip suppliers or operating systems. Telcos face opposition when they want to shift from time division multiplex protocols to Internet Protocol.

On the other hand, telcos already  have gone through several changes of core revenue model, and face continuing pressure to migrate business models of substantial size, with no assurance of success.

Two key observations might be made in that regard. Telcos are more agile than commonly supposed, when it really counts. Also, the telco revenue model is uncertain, as uncertain as Apple, Google, Facebook and Amazon face.

But communications networks also are viewed as “essential” national resources--and affected directly by essentially political constraints-- in ways that device and app providers are not so affected.

There is a simple way to illustrate the difference. It is unlikely many would advocate huge intervention efforts were any single device or application supplier face bankruptcy. It is not so clear the major suppliers of communications connectivity would be viewed so casually.

Prior to 1985, when the former monopoly AT&T was broken up as part of an antitrust settlement, the U.S. Defense Department objected to the breakup, on national security grounds.

In similar ways, no major potential failure by AT&T or Verizon would be viewed as casually as would a major device or application provider bankruptcy, for example.

So far, telcos have proven about as agile as Apple in replacing former legacy products with new revenue generators. Where Apple has moved through PCs and music players to smartphones, major telcos have displaced international and long distance with mobile voice, then mobile voice by mobile Internet access.

At the same time, the major telcos have replaced fixed line voice with high speed access and have added entertainment video as key revenue sources.

There is no question even those transitions will have to be followed by other transitions. So agility is more characteristic of large telco operations than often is assumed to be the case.

On the other hand, telcos face danger in virtually every key revenue source, no different in principle from the need app and device suppliers face to “constantly innovate” in products and services.

The point is that tier-one telcos are not the slow-moving dinosaurs observers sometimes assume they are. On the other hand, neither are they so secure in their markets that the risk of major failure ever can be dismissed.

Just as device and app providers have to innovate constantly, so do tier-one telcos.

And even if firms such as Google and Microsoft have learned the hard way that even they cannot make any choices they wish, tier-one service providers face fundamentally greater constraints.  

Governments have direct influence over tier-one telco pricing, products, terms and conditions of sale and even permissible market share.

The point is that “regulating” big telcos is more tricky than in the past. No less than other device and app providers, telcos constantly face maturation of former core products, and continually must create new products to sell.

So regulators must avoid actions that allow re-monopolizing the market. At the same time, regulators must allow telcos enough freedom to create brand-new products with sizable scale, to replace current revenues destined to shrink or disappear.

Telcos have proven agile enough to navigate the transitions. Regulators also must be agile enough to allow the innovation to continue. It isn’t easy. It is necessary.T

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