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.