Blog Post

Telco dogs need to learn software tricks

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.

36 Responses to “Telco dogs need to learn software tricks”

  1. In my opinion, Telcos are simply reluctant to shake hands. They seem to be selfish type!

    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)

  2. Great comment thread. Some related thoughts on recently leaving a big-4 US telco:

    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/

  3. BT are revving up for this, they are well into an aquisition phase looking to buy businesses in the UK with exactly this SaaS expertise or at least having the appearance of it.

    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.

  4. Bruce

    Om,

    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.

  5. Anonymous

    Om – I fell out of my chair after I read this. This is hilarious

    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.