Martin Geddes thinks the telecom industry has reached its peak. As he explains, telecom is like the railroad business at the height of the railroad barons. It has acquired its maximum share of the economy, and the only way now is down.


The telecom industry has reached its peak. This is it. Look around you. Whatever you are doing in telecom, however you are making money in the field, it isn’t going to get better than this. This industry has acquired its maximum share of the economy. We are the digital railroad business at the height of the railroad barons. The only way now is down. We’ll see maybe one or two more mini-booms, a few more troughs, but the long-term trend has just gone into reverse.

What’s going on? Let’s gather the evidence

The telco voice and messaging business is on the verge of going into meltdown. Since this is where the margins come from, the problem is hard to exaggerate. The drip-drip of articles about declining voice and messaging volume and revenue is becoming a small stream. Even mobile telephony is losing ground in competition to asynchronous messaging. Twitter and Facebook message volumes are exploding, and SMS is beginning to sink. Termination and roaming are endangered species, hunted by packs of voracious regulators. There is no way back. When I started writing Telepocalypse back in 2003, the only thing I got wrong was the timing.

The traditional vendors are dying, and this is disrupting the telco supply chain. Their multi-year cycle times are hopelessly mismatched to the environment. The federated, standards-based, interoperable services game is coming to a close. Huawei is mopping up the bloody remains from the battlefield. Time to pack up. A raft of “internet-time” startups are taking their place, filling in the missing features that decades of neglect of the voice and messaging business have left behind. (You mean I still can’t record and search my calls in 2012? Wow!)

If you can’t join them, beat it

Meanwhile, telcos are launching over-the-top services to gain and retain customers. For example, check out Bobsled from T-Mobile, Jajah from Telefonica, and 050 Plus from NTT. There’s about to be an all-out war to become one of the surviving voice and messaging platforms. (Hint: Telefonica is ahead. Everyone else is playing catch-up.) The Global System for Mobile Associations’ Rich Communication Suite initiative is in intensive care, and relatives are inquiring about local funeral directors. Senior execs say it privately. Nobody wants to alarm the investors by letting them know that those future cash flows aren’t so secure after all. VoLTE and 4G voice is a mess that preserves the worst of GSM telephony, without giving the user any upside, and leaves an open goal for over-the-top alternatives like Skype.

I strongly believe the business model for voice and messaging is about to go into reverse. The value is going to drain out of minutes and messages charged to users. Instead, enterprises will pay for features that make customer contact efficient, effective and secure. Where Facebook has fumbled, others will fill that gap and become fit-for-purpose B2C channels. Voice and messaging won’t just drop to a price of zero. It will go negative. Users will be courted to lodge their identity and presence with new communications and commerce intermediaries, who make money “upstream.” Once the process starts, it will become unstoppable.

Telcos won’t get a chance to deploy the next-generation free phone product unless they act fast.

Video and data: volume without profit

Video is booming, but there’s no money in it for telcos, except for a lucky few who grabbed the sports rights. The cable business model is now being unbolted from its foundations too. The talents of acquisition, bundling and distribution will serve the cable companies for a few more years, but they know the score.

Whether it’s voice, messaging or video, the money chain from application to transmission to infrastructure is breaking down.

Data volumes are soaring, but again telcos have failed to master the brilliant packaging of voice and SMS with internet services. Apps stores aren’t services stores. Costs are out of whack with revenues, because pricing and network policy is managing “bandwidth.” But that is not the real issue. The real issue is how customer experience is linked to contention, and no telco knows how to manage that adequately today. Given high fixed costs and low marginal costs, some player will always want to offer unlimited plans at unprofitable prices. It’s a not-for-profit business keeping iPhones and iPads connected.

So where’s all the money gone?

For sure, Apple is surging. Apple may only have 20 percent of the smartphone volume, but they have a huge share of the profit. This is a fundamental shift in the balance of power in telecoms. All the APIs that really matter are going to be decided in Cupertino. Don’t be deceived by Android’s volumes. There’s no money there — it’s a dollar-destroyer.

Although Apple is the star around which much will orbit in future, Google is growing too, as long as the PC platform holds. And Amazon is showing how it’s hard to fake infrastructure, and nobody is going to challenge them anytime soon.

Telcos aren’t going to be able to divide-and-conquer these platforms. The locus of power has shifted fundamentally. The value creation is outside the network.

It gets worse.

These players may start to aggregate assets and wholesale access to build AppleNet, GoogleGlobe and AmazonRiver to connect merchants to eyeballs and wallets, without any other gatekeepers, such as a telco retail bundle, in the way.

It gets worse.

Telcos as profitable networked cloud services providers? You’ve got to be kidding me.

It gets worse.

Ericsson has positioned itself as what my colleague Dean Bubley refers to as a dominant “under the floor” player. It is potentially a king-maker for telcos, controlling the delivery platform from which their operations have to be run. Networks are just large, distributed supercomputers — and Ericsson is the new IBM. Nobody got fired for choosing them. Their power is ominous for operators.

It gets worse.

Home networks don’t need service providers. You just buy a box and plug it in. Street-level networks don’t either — you can build a simple resilient mesh. Nor do town networks that join the kids with their school. We fundamentally don’t need communications service providers to manage data transmission. As long as we have a means to fund infrastructure, just as we manage with roads, we can do it for ourselves.

This is the beginning of the end of the Information Superrailroad, where all the bits are scarce and billable. Broadband ISP service is a branch line to nowhere.

Unlicensed wireless is the automobile, and local open fibers are the roads. It doesn’t carry very much very far right now, but it will. And with it, the fate of the telecom industry as constituted today is sealed. Like with the railroads, telcos will carry ever more traffic, and will protect themselves with political power. But their heyday is over, and a new disruptive model has emerged.

Welcome to the real Information Superhighway. I hope you like your iCar.

Martin Geddes is founder of Martin Geddes Consulting Ltd. He runs public workshops on voice innovation and strategy. This article was originally published on Geddes’ site, Future of Communications.

Image courtesy of Flickr user Dave_S.

  1. Richard Bennett Saturday, February 25, 2012

    “Home networks don’t need service providers. You just buy a box and plug it in. Street-level networks don’t either — you can build a simple resilient mesh.”

    Martin, do you have any idea how ridiculous that sentence is?

  2. Richard Bennett Saturday, February 25, 2012

    Pardon me, it’s a paragraph.

    What happens to home network data when it reaches the box? If it’s Internet data, it does to a service provider for a fee. Why would I want to build a neighborhood mesh that enables others to use the service I pay for for free?

    You can’t do the things that the cellular network does with Wi-Fi. On the cellular scale you need to do things that Wi-Fi doesn’t know how to do.

    Don’t let your visions about services dictate naive solutions to the very real transport issues.

    1. one thing that has surprised me over the last few years and i little related to what are saying.

      i would have expected that by now nearly all apartment buildings would have subscribed to fast fiber connections and provided free fast wifi for all tenants. i also expected that gated communities would all have community wide fast wifi.

      it has not happened like that, but i still believe that it will. and than gradually no one will have there own internet connections they pay for individually instead it will be included with their homes.

  3. It’s not the edge of the networks that gives the telcos power, it’s the WAN core. Laying fiber across the ocean. Leasing rights along railroad right-of-ways, thousands of miles of backhoeing across deserts, mountains and other sparsely-populated areas. Shooting satellites into space. Maintaining all of the above. I have written about having tech workers move out of the traditional big tech centers like Silicon Valley and into (far less expensive) smaller cities and towns along railroad tracks–in particular there are a lot of former company towns along railroad tracks that are now economically depressed. If we had that going we would be a lot closer to being able to build and maintain a publicly-operated backbone, but the long-haul links are still a problem. (I was a WAN backbone engineer for Worldcom/UUNET back when their network was larger than their their six primary competitors combined.)

    1. I think the mistake people make is to assume that a disruptive technology like ad-hoc open networking needs to immediately and directly compete with and replace established systems like the Internet. They don’t; and new applications like M2M (particularly for mobile devices) may even expose the limits of Internet Protocol itself (for it has many problems, but it is heresy to point them out).

  4. Unfortunately, space didn’t allow me to expand on all these ideas, so I’ll use the comments to clarify.

    The original article was called “Peak Telecoms”; I’m looking at a process of growth as a share of the economy that has continued for 170 years, and I believe will now stop and reverse. This is not going to be overnight.

    Regarding wireless meshes, I am definitely *not* proposing that WiFi meshes can somehow replace cellular overnight (or even in the short term). However, the inevitable future I see is that people locally will reject the feudal telco divide-and-conquer approach to selling connectivity. Indeed, we see this in places like Romania and Pakistan where rather than wireless meshes, people string fibre around to share local access!

    The next step will be very small-scale: the equivalent of the “wireless LAN party” using WiFi Direct; people bonding and sharing access on a small scale. Thus connectedness flips from being a service to a product. In the long term (pace Keynes) we end up with a very different technical and economic architecture to the one we have today.

    We see the early stages of this with business models like the one from netBlazr.

    If I was going to write this again, I’ll grant you one change – I’d take out the word “simple”!

    1. And the backhaul for these wireless mesh networks? Do you really propose to have multiple internets considering without telcos who is going to lay submarine cables. You say the “we can do it.” I’m not sure who “we” are but if you propose a government run Internet backbone is the solution, you frighten me.

  5. I can hear the day when people say, “You mean you still have cable?”

  6. Martin, you may not be advocating replacement of cell with WiFi, but that is IN FACT what AT&T wants its users to do.

    They’ve been preaching ‘scarcity’ while sitting on bandwidth. And judging by how angry their users are on twitter, I’m thinking that a number of users WILL replace AT&T with their “own infrastructure” ..that is, Mom & Pop ISPs who run over the telco’s leased lines, offering better service.

    As you say, it’s not simple, nor will it happen ‘overnight.’

  7. 5minutesIcantgetBack Saturday, February 25, 2012

    Keep up the message Martin, eventually you’ll be right. Just hope you live to see it.

  8. Reblogged this on quickgamer88.

  9. I’d love you to be right about mesh networks but the reality is that they are much harder and more complicated than we all initially thought. In the long term though, I agree, that’s the way to go.

    I seriously question though, Cupertino’s rule once the Telcos are dethroned, and you actually need to pay $700 for your shiny new iPhone 6 when you’ve just done that a year earlier with your iPhone 5s. Even Apple’s brilliant marketing is going to have a challenge when people need to spend the money on the hardware rather than have it buried in your monthly fee to AT&T.

    1. The smartphone is going to be the key platform. Apple’s supply chain expertise will allow them to drop prices whilst maintaining margins – up to a point. The iPad confounded expectations on its price point, and the iPod range shows that tiering can be made to work.

      A key question is whether they can decouple from expensive data plans in the US. A partnership with a friendly carrier like Sprint might allow the apps store to be rejigged so that data is “free” (but usage is charged at wholesale back to the application maker, to incentivise network-friendly behaviour). This kind of packaging reflects the success of SMS.

  10. Really…”Home networks don’t need service providers. You just buy a box and plug it in. Street-level networks don’t either — you can build a simple resilient mesh. Nor do town networks that join the kids with their school. We fundamentally don’t need communications service providers to manage data transmission. As long as we have a means to fund infrastructure, just as we manage with roads, we can do it for ourselves.”. Absolutely absurd. Shoot, why don’t we simpy make our own electricity, plumb our own water, etc.

    While I can agree there a some disruptive players and the game is changing…just like nearly every industry, btw. This premise that telcos are dead is absolutely false. Players will change as will business models but businesses need to run the the networks that carry all the voice, Internet, apps, etc. traffic. Doing so is expensive and complex.

    1. It seems that distributed energy system and making our own electricity are the next wave… and the rural telco and electric companies would surely like to share some of their history with you.


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