“Telcos must climb the value stack and not become dumb pipe providers.” That bit of advice is hard to dismiss. “Telcos need to protect their core business.” Also a reasonable platitude.
But there’s a problem with platitudes: they are worthless, or almost so.
In the former case, one might as well admit telcos are in one business, and need to be in another. In the latter case, one asks what might literally be impossible, long term.
I say that as someone who has been in business long enough to have tried both strategies in a media and content context, before and after the Internet, and who has made a conscious effort to track business model challenges in telecom for nearly 30 years.
Not to belittle reasonable efforts to make big transitions, which is precisely what telcos, cable TV companies, satellite TV providers and Internet service providers must do, but sometimes very little beyond slowing the rate of decline is feasible, in the legacy business.
“Winning,” in other words, might literally be strategically impossible. “Losing more slowly” might be best outcome.
In other words, the core business might not be strategically defensible. Climbing the value chain might work, but that is tantamount to “getting into a new business.”
If that is the case, platitudes are not so helpful. What is helpful is to make a fundamental decision that the core business is going to decline, and that the best outcome is a harvesting of cash flow, and then deployment of that cash flow elsewhere.
That is tricky, for lots of reasons. Public companies have to convince their investors that a transition plan really makes sense, and that the core business also can be sustained.
Even if some of us might say it is difficult to achieve the former, impossible for the latter, there are lots of reasons for executives to say it is possible.
The best example is what happened to AT&T, after the 1984 divestiture. AT&T tried mightily to maintain--and finally merely to harvest--its present business (long distance calling) while investing in many new growth initiatives.
It was a sound strategy, ultimately not executed well enough to allow AT&T to continue life as an independent entity. But then, no company in that original space managed to survive, either. MCI was absorbed first by WorldCom, then by Verizon. Sprint’s long distance unit continues as the “wireline” part of Sprint, but is a footnote.
And though the matter is not yet decided, one could ask what becomes of the “access” function. Already, huge shifts have occurred.
In part, access, though an essential function, is provided by “other companies or networks.” That is the case where cable TV companies provider high speed Internet access, video entertainment and voice.
That is the case when mobile companies provide voice, data access and messaging. And partial fulfillment is provided by third party Wi-Fi networks, satellite constellations, wireless ISPs and others.
To be sure, the traditional access function is far from “played out.” Telcos are gaining share in video entertainment while cable TV companies are gaining share in the business services market. High speed access is largely saturated in developed markets, with market share shifts between suppliers are the key change.
But product maturation is quite clear in the voice and messaging areas, where mobile has become the way most people prefer to consume voice, where competitors are taking share and where fixed lines are dropping every year.
Does attrition continue forever? Probably not, but largely because voice and messaging become features of the network or the service, not necessarily huge revenue contributors. As it is, much fixed network voice consumption happens because it is sold as part of a compelling bundle. Absent the bundling, fixed network voice take rates would be even lower.
The clear point is that it might not, strictly speaking, be possible to “save” the voice business. The function will continue to be valuable and essential. It simply might not be a major revenue driver, in the end.
That leaves the “move up the stack” advice. Just as clearly, that makes sense. But what it actually means sometimes is not so clear.
The fundamental character of any Internet Protocol network is the separation of app from access. In essence, there is no “value chain” to be “climbed.” There are apps, and there is access.
An alternative way of phrasing matters is that access providers need to be in the “apps” business. Apps occupy different positions in the value chain.
Yes, it is possible, conceptually and in practice, for an app to be used in a walled garden or closed manner. Apps can be bundled with access.
But the notion of “climbing the stack” might not be the most apt way of describing the change. Occupying a different part of the value chain might be the better generic description, and better describe the business framework and mindset needed to succeed.
Apps can be bundled. Apps can be designed to work collaboratively with access services. But that might not be the “usual” way. Instead, apps are designed to work on any access and any device.
Having a big pipe and running the access business at lower costs will always be important. That function must be provided. So will “owning some of the content delivered over the pipe.”
What isn’t yet so clear is “who” the access providers will be, what the revenue models will be, and what former access giants will have done to recreate themselves. And, sometimes, it cannot be done, by most.
So “moving up the stack” might be a dangerous notion, in one respect. It implies doing “something else,” in addition to what one already is doing. Sometimes, better decisions are obtained by pursuing a clean “do something else” strategy.
For major telcos, that might mean divesting first some, then possibly “all” fixed network assets. That isn’t as crazy as it sounds. In most of the world, “mobile” is the primary access platform, and service providers basically view fixed access as a niche platform.
That is not an instance of moving up or down the stack, but simply choosing a more relevant and sustainable platform and business model. It is “doing something else,” not “moving up the stack.”
In some cases, divesting fixed assets might be dictated by market conditions. In some cases, other providers will prove more successful (Google Fiber, cable TV companies, Wi-Fi), destroying the business case. In such cases, firms might do better by “doing something else” rather than trying to “move up the stack.”
Some might point out that over the top apps are examples of moving up the stack. That’s correct. The business issue is whether an embrace of OTT voice, messaging or video is “doing something else” or “protecting the existing business.”
Most of us might agree OTT voice, messaging and video is a clearer case of “doing something else” than “protecting the existing business.”
So the point is that sometimes, all that can be done is to harvest what is dying, to nurture what might grow.
No comments:
Post a Comment