When a zillion startups are settingout with an aim to change the world and create value for customers (not thinking much about their profits- I have personally worked with few startups and none of them had major profit motives)… Telcos seem to be busy counting their earnings. It would be a miracle to see some CHANGE with the Telcos!

Here is a news some of you might be interested in…

Telecommunications companies like Verizon and AT&T want to build high-speed networks to provide video and Internet services in competition with cable companies. Will these networks be broadly available and foster technological innovation? Or will they simply benefit certain moneyed interests? The answer — and, ultimately, the future of the Internet — depends on the telecommunications bill currently winding its way through Congress. Consumer advocates and progressives like Rep. Ed Markey (D-MA) are pushing for the telecom networks, which will be built using public rights-of-way, to provide universal, non-discriminatory access. The telecommunications companies (along with the cable giants) want to reserve the right to give preferential access to whomever has the most cash. Thus far, unfortunately, the industry is winning. (Credits: ReachCustomersOnline.com)

1. The telco industry and web 2.0 zeitgeist really don’t even engage with one another — there’s a huge opportunity for the telco that can be at the forefront of this dialog.

2. There are lots of really smart people at carriers, they just aren’t necessarily in charge.

3. Carriers fundamentally do not understand incremental end-user product development, the name of the game in the rest of the tech universe these days.

4. There are services carriers can provide that Web 2.0 folks would actually want, if they knew what they were or how to access them.

5. Standard walled-garden stuff aside, carriers need to fundamentally rethink how they define “developers”.

6. Carriers needs to stop trying to out innovate one another, and the web folks, when it comes to user-level converged services — they are just not set up for it and shouldn’t be trying.

Whichever carrier can step it up and engage — engage developers, engage users, engage the web 2.0 dialog — will be the one that ends up on top. No manner of IMS, SDP, SaaS etc capability will compensate for a failure to appreciate the above. One guy’s opinion anyway ;-).

P.S. Longer argument on my blog at: http://www.willmeyer.com/blog/2007/05/24/wheres-the-telco-in-web-20/

You don’t have to frequent too many industry events to hear the favourite suspects for takeover.

BT know they aren’t and can’t be agile so they act like retail supermarkets: they collaborate with selected partners ( in a supermarkets place they would take on a niche supplier) assess the response and demand for the product and then buy similar smaller companies used to being agile and rebrand them – look at BT iNet (they’re just like Sainsbury’s Organic Bacon :) ) – BT can create a competitive agile stormtrooper business with the stability and backrooms of a monolith – we can still beat them as the agile stormtroopers get swamped but they can do a great deal of damage in the process.

Actually, your point about improving the network was one thing I didn’t disagree with. Of course, unless BT can control the entire network end-to-end, there are limits to what this can accomplish. For example, they can’t improve jitter or packet loss in the WiFi connection in your local Starbucks. Still, to the extent they can deliver a high quality pipe, overall customer performance will improve.

However, it is a leap to get from that to having BT (or any similar telco) get into the applications/ software space. As others have pointed out, no incumbent telco has had success in this area in the past. (Although, that could, in theory, be changed.)

The problem is that the applications and network businesses don’t fit together. On the contrary, the more connectivity moves to the Internet, the more they are driven further apart. (Think of it as the Internet divergence.)

BT could build a software business (after all, IBM transformed itself into what is largely an IT services business), but they won’t get there through the network.

Do you seriously think BT, C&W, France Telecom etc can do this? They are so distant from Software mindset.

I have spent years working with BT, C&W, FT. Believe me each wanted to run and support Hosted IP Tel, Hosted call center services, Hosted CRM, Hosted what not …And they do offer these today. It probably forms less than 5% of all their revenue.

They just cannot do it. Its Layer 8 issues (i.e., people politics and personalities.)

They have the money to buy a SaaS player. But that will be choking and hanging the SaaS innovation.

My 2 cents.

I have a different twist for the debate.

Lets take example of simple(!) portal by these Telcos as ISPs.

AT&T and BT partnered with Yahoo while Comcast and AOL (earlier) created their own portals. What is the perception of success / failures and lessons learned for portal by these companies and does that apply to SaaS?

Our conclusions regarding the economics of “dumb pipe” status are, we suspect, quite counter-intuitive (and starkly counter-consensus). In short, the economics of such a scenario, as measured by purely financial metrics, are actually better than those of the business today.

• Revenues would fall significantly
• Operating expenses would fall even more significantly
• Operating cash flow would therefore fall more modestly, while operating cash flow margins would actually expand
• Capital expenditures would fall sharply
  Free Cash Flow would actually increase
• Capital employed in the business would also fall sharply, yielding much higher ROI and ROE

To be sure, our analysis ignores potentially painful milestones on the way to such a “raw connectivity” future, such as the stranding and subsequent write downs of a huge portion of Comcast’s current asset base. Growth prospects in this “end game” would likely also be lower than today’s (although not necessarily). Nevertheless, our analysis leads to the surprising conclusion that a disintermediated business would, on most financial metrics, at least, actually be a better business than the current one.

Behind these counter-intuitive findings is a simple, and perhaps more intuitive, truth. In a high fixed cost business, it’s not such a bad thing to be the low cost provider.

agreed this is an open market place, and there are no monopolies, but that doesn’t mean that the telco experience is invalid. if that was the case then why buy old AT&T. That is a part of buisness where telco being telco is a good thing.

Why not compete here with the smaller players who seem to have gotten the memo – and are retooling themselves.

I am not suggesting as many of you are perhaps reading that they start software development business.

I just don’t buy the “dumb pipe can’t succeed” argument for either business or residential. Craig Moffett at Sanford C. Bernstein has been pitching the “Dumb Pipe Paradox” for the past year. His conclusion is that trying to be a “smart pipe” brings a lot more associated cost than revenue for all of the carriers and MSO’s. He makes a pretty strong case for the residential dumb pipe, especially for cable MSO’s getting out of the video business (this is from one of Comcasts leading analysts and a huge bull).

Having watched the telcos struggle unsuccessfully to move up the value chain for the last 30 years from AIN to IMS, I am convinced they should focus on what they know how to do best.

Telcos stand to monetize their network and applications only through an ecosystem of software services and Web 2.0 partners.

I don’t see a win-win telco-software partnership that the public (or Congress and the FCC) will allow for residential broadband. Business private network services is probably a different story.

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This theme of latency and jitter and packetloss seems to be a common driver among people saying the telco can deliver SaaS better because they can ensure none of these issues crop up. My question is: since these aren’t monopolies in the last mile like home service, why would anyone put up with horrible service that has significant jitter, packet loss etc. They can switch their circuit to someone who doesn’t quote suck as much unquote

I think as Om says, the Telcos shound brace and be prepared to deliver such a platform that would help them deliver these services.

Ans finally please do not bring Web 2.0 here. It makes little relevance to this topic in my honest opinion.

In my opinion, Telcos must transform out of bit transport into becoming a digital distributor of digital goods. Else companies like Google, Yahoo and eBay will rise their backs like Zorro and pay nothing.

While Exxon-Mobil is distributing a resource in finite supply, Bandwidth is now as freely available as Tap water, thanks to the fiber invested in the boom days and margins from that bit transport will fall. Future margins are in innovative SaaS applications (like Billpay or m-wallet)

Telcos can transform themselves to Telco 2.0 by partnering with software services companies and building common capabilities that can be reused by third party innovators. It’s a win-win!!