Friday, June 3, 2016

Will "Computing" Model Disrupt "Telecommunications" Leadership for the First Time?

Up to this point, the market dynamics of the "telecommunications" business have had a profoundly different pattern from dynamics of the computing industry.

To summarize at a high level, computing has gone through clear eras, with clear shift of market leadership. That, arguably, has not happened in "telecommunications." 

But one has to wonder whether that will remain the case, as the "access" function, and separation of apps from access, begin to morph. Already, in some markets, incumbent market share has dropped by more than half. In a few market segments, incumbents no longer are the leaders. 

In the U.S. market, cable TV providers already are the leading providers of high speed access services, for example. 

Some board members at Microsoft, though happy about Microsoft’s shift to cloud services, worry that the market could shift suddenly. 

Chairman John Thompson, for example, is said to recount what fellow director Chuck Noski, a former chief financial officer of AT&T, has said about the suddenness of technology-driven (and end user value perception) market shifts. 

Noski is said to have “watched the telecom carrier’s traditional wireline business evaporate in just three years as the world shifted to mobile.”

At the same time, one has to be mindful of history. So far, in the history of the computing industry, not one firm that has dominated the industry in one era has retained that leadership in the succeeding era. None.

Apple might be thought an exception, to the extent that it never “lead” the market during the PC era, even though it surged to prominence in the smartphone era.

But even for Apple, the issue is what comes next, in the coming era of computing. 

Historically, we have not seen similarly clear “eras” in the telecommunications business, even if key switch and access technologies have evolved. But one has to wonder--as “access” becomes part of the Internet ecosystem--whether we might see a huge break from the traditional pattern. 

The implications will be painfully clear, if so: tier-one telcos will not be the leaders of the access business in the next era, if the computing model applies. The leaders of every public company always face a huge problem: they must be truthful about prospects for their businesses. 

At the same time, they must protect the equity value of their firms. The two requirements can conflict, especially in rapidly-changing markets.

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