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Summary:

Last year, after visiting British Telecom (BT) and meeting with their executives, I left London with one key take away: BT was one telco that completely understood that it was facing uncertain times, and had no choice but to reinvent itself to survive. The senior BT […]

Last year, after visiting British Telecom (BT) and meeting with their executives, I left London with one key take away: BT was one telco that completely understood that it was facing uncertain times, and had no choice but to reinvent itself to survive.

The senior BT management understood that while broadband was a start point for its reinvention, it had to boldly go where no telecom had gone before, if they wanted to survive. They had to behave and think like an Internet-based software company.

Ben Verwaayen, BT chief executive, when talking about BT’s transformation remarked :

“This is the second phase of BT’s transformation. The first phase saw BT shift its focus from narrowband to broadband. This next stage will see BT advance from a 20th century hardware-based company to a 21st century software-based services company.”

Though it may sound like a hookey statement by a telco chief, it is actually quite true. According to McKinsey nearly 60% of CIOs are currently considering software-as-a-service model. If you factor in the lag-factor typical of McKinsey reports (aka a year after the fact), the SAAS movement is well under way.

“There are more than 1,000 SaaS vendors in existence today, although 90% have less than $15 million in annual revenue, but are growing 4x faster than licensed software,” notes Colby Synesael, analyst with Merriman Curhan Ford.

The weak link, however, for SaaS, is the reliability of these services over an IP connection. Synesael, makes a good point when he argues that SaaS needs to overcome bandwidth constraints, packet loss, jitter and latency. These are issues that telcos can address with their network capabilities, and they can start to learn the ways of the software world, and work with SaaS vendors.

“In a software driven world, services will be available in real time and around the globe, harnessing the potential of BT’s 21st Century Network,” Verwaayen recently said.

That holds true for any telecom operator. The old AT&T CTO Hossein Eslambolchi used to talk about software-expertise-as-a-way out from telecom commoditization.

I wonder if this is a wiser, albeit less sexy way for telecoms to bolster their business. Instead of spending $6 billion on IPTV projects, AT&T could say buy a Salesforce.com (have some money left over for satellite-based triple play) and ensure a few hundred thousand folks paying $60-odd dollars a month for the CRM as a service. It be a nice way to fight off the cable companies who are now gearing up to go after the small and medium sized businesses.

  1. Tom Coseven Monday, May 21, 2007

    A want my telco to provide me a big fast reliable pipe — not try to sell me a suite of revenue generating services. In BT’s case this is not new thinking. It is a jump back to the 80′s mindset before the Internet, when the telco thought they had a captive subscriber.

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  2. I agree Om, your point becomes especially interesting when it comes to behind the firewall applications. Many large businesses will not trust their applications to ride the internet, which currently excludes them from using most of the current web2.0 software.

    Will there be a telco with enough vision to provide hosted web2.0 technology within their IP VPN infrastucture.

    The fit almost seems perfect: web2.0 companies are often lacking customers but their software is unique. Telcos are exactly the opposite, rich in customers but starved of differentiation.

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  3. OM, how do you see BT’s strategy of only rolling out ADSL2+ and no VDSL/FTTH in this strategy? Though Ben Verwaayen said at an Ofcom conference (see youtube) that it will deliver 24Mbit/s we all know that that is not what most people will receive. It is not stimulating the roll out of new networks. They are even doing a 5.5billion buy back of shares instead of investing it in better networks.

    Furthermore, I wonder why you are so happy about services. If you compare the income generated from services with the income generated from infrastructure, you will see that per household spending on infrastructure is more. On a company level it is different, but even there infrastructure is a sizable chunk of the budget. But services are incredibly more difficult to get right. Just count the amount of competitors Vonage, Youtube, Ebay, Google, Salesforce have, there are plenty. But all these upstarts beat the incumbents and work on a global scale, something most telco’s don’t know how to do. So for Telco’s to get into the services game and be good, they will have to do the following

    • Design a brilliant service that they can sell on a national or global scale. (Just build the next Youtube. If kids right of puberty can do it, a big Telco should be able to do it too)
    • Make/buy a very good IT-services company that works very well on its own, without needing to resell the telco’s infrastructure. (but where are the synergies??)
    • Leverage their network knowledge to build low latency/jitter services. (Oh wait, QoS mechanisms don’t work in real life, but increasing capacity does and systems management is hard in itself)

    Well you get the point, in my opinion East is East and West is West and success at one network layer doesn’t translate into success at another layor in the stack.

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  4. Ask Exxon-Mobile what is wrong with being a commodity?

    Telco’s have no business doing value added services. They will (and have tried) it within their walled gardens of the past (and in mobile). Just deliver me the packets on time, please.

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  5. just a stupid question: why “telco dogs” ?

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  6. they understand scalability, reliability and they have early outsourcing successes (particularly at MCI)…but if you look at where they have done well in IT outsourcing, it has been primarily in WAN services. End user services, data center ops, managed server/storage they are still bit players, and when it comes to apps outsourcing they are babes in the wood. SaaS would require many of these disciplines and additionally more of a software culture. Would need a huge transformation at BT or Verizon or Deutsche …

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  7. Alberto,

    that is just a play on the old phrase, old dogs new tricks etc.

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  8. Peter

    good point – it is just different kind of packets we are talking about. they have been good a WAN services, and using that expertise that can extend that reach into the SaaS side of things. Remember, it is like selling five different types of petrol/gasoline -

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  9. Vinnie, (and raindeer) you make good points. THat is precisely why i am writing the post. they need to figure out a way to learn to play in this new market – software – which is where they can leverage their network skills more effectively.

    Its not about if they can build their own SaaS services (I don’t think they can), but more about where to press their advantages instead. learn new tricks and benefit from this big shift.

    if they don’t someone else will. like the global crossings of the world. or the cable companies. who are happy to try anything new.

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  10. Om – do you know any web2.0/software innovators who would be happy to engage with the telcos?

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