Reimagining the telco; impact of the internet economy on the telco industry part 1/4

Updated version (key points only, material  differs from this post) - http://internetbusinessmodelasia.blogspot.my/2015/11/dichotomy-of-modern-telco-lost-in.html

     ‘Once, only AT&T had the right to connect electronic devices directly to its telephone network!’

 Introduction

The previous posts considered internet business models and unique business rules (termed internet rules in this blog) used online by studying the iconic internet companies and the development of the internet. The next series of posts ponder their impact.  Some will be ad hoc commentaries ie. little analysis.  It is hoped that you could collaborate to fill in the gaps and provide input to strengthen the subject matter.  Or perhaps jointly to discuss a topic.

This post examines the possible impact of an internet economy on the telco sector, in part using the internet rules in the analysis and realising that we’re only about 30% into the internet cycle (see previous post “internet business model Part 2.1” on 27 May 2013).

I’ll begin with a response to a recent ITU attempt to ‘align’ the internet network (ISP) to the telco business model and only then study the larger issue of the impact of the internet on the ‘telco’ industry.  It seems massive.

“International Telecommunications Union (ITU) aiming at enforcing a substantial change in Internet network economic principles. The aim was to introduce international IP traffic compensation mechanisms similar to those that prevailed in PSTN networks” – taken from an insightful piece “There’s no economic imperative to reconsider an open Internet” by Benoit FELTEN, http://www.diffractionanalysis.com/.   This topic was discussed at the recent annual conference of the ITU in Dubai in early December 2012.

What do you make of this?

Here’s my take.

The PSTN network is based on a business model of monetising voice.  But voice calls will in time be free (more later).  This conundrum tells that something fundamental is happening to the industry, thus to its business model and ultimately the ‘compensation’ model.

Have you noticed that the global telecommunication equipment suppliers, giants only a decade ago are all withering?  Nortel is bankrupt, Motorola is no more independent.  Alcatel merged with Lucent, Nokia networks merged with Siemens.  They continue to struggle.  Ericsson has changed their business model.  These are the leading voice technology suppliers and once all our telephone calls traverse through their equipment.  Look through the brands today and you’ll see a difference.  It seems the data networking vendors like Cisco and Huawei are in the midst of replacing them.  For something closer to the consumer, look no further than the mobile handset market.  Today’s leaders, iPhone (Apple) and Android (Google) are from the computer (data) industry taking over from Nokia, Ericsson and once Motorola.  Blackberry benefitted as a transitional device, from a voice-dominated industry to one based on data.

When an industry transform, it reduces the number of the participants and when the old guards are being decimated, it is a sure sign the industry has changed.

Let’s go deeper by analysing the telco/celco service provider industry.

Back in the mid 1990’s whenever a group of us (early operators of ISPs within Asia) hang out over drinks during internet conferences, we ask among ourselves the revenue mix of the incumbent telco in our respective countries.  Every year, it is the same - voice traffic decreases while that of the internet increases.  The ratio depends on how developed a country is and usually the more developed it is, the more progressive it is, the bigger the percentage fall in voice revenue.  We knew an underlying shift is upon the industry.  Basically we were tracking the ratio of internet (ie. data) traffic over voice traffic coming out of each country.  I was paying attention to the telco’s annual reports on their revenue mix which increased annually for data.  We were seeing the change in the telco industry happening right before our eyes.  I did mention this fact to some telco executives I know but they simply glaze over.  I think they haven’t yet comprehended the internet economy and the dot.com effect was not even upon us then.  I had a distinct feeling (then) that they think the internet was a fad and will go away.  Or that it was just too insignificant.  The ratio today continues to increase for data.

Nowadays a lot of new bandwidth capacity between a telco’s exchanges and internationally are built on ip (internet protocol), the protocol of the internet, a ‘data’ network.  A lot of our voice calls, especially mobile are now routed through ip networks.  Once, in the earlier days of internet access, it was the other way with dialup access – data such as web content is routed over a network built from voice technology.  Leased lines today are being replaced by broadband and Ethernet private lines.  Furthermore, the new businesses the telcos are building such as internet data centres and cloud computing are ‘data’ businesses.  And for mobile, LTE is the rage.  LTE is based on Wimax-type data technology.  There have not been many investments in the ‘voice’ sector.  The traditional business model of monetising voice is passing.

These trends further tell that the terms ‘telco’ or ‘telecom’ are passé, a misnomer (tele=telephone=voice) as voice revenue is now a small part of their business.  'Communications' should replace 'telecommunications'.  Perhaps in time, the terms would change.  In the meantime, should the business model start to change?

With the telcos rebuilding their infrastructure and business on data technology, is it logical to impose a billing model on consumers based on a model they seem to see little future for?  So coming back to the ITU attempt, does it still make sense to adopt mechanisms of the PSTN networks?

And with the term PSTN destined for the history books, would it not be better for the shareholders if the traditional telco focus on reimagining its business on data?

But what really changed?  We’ll explore that from an insider who worked in both an independent ISP and an incumbent telco ISP in the next post.

LinkedIn – dr tommi chen (goggle + profile not completed)

©Chen Thet Ngian, InternetBusinessModelAsia.blogspot.com (2012, 2013).  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chen Thet Ngian and InternetBusinessModelAsia.blogspot.com with appropriate and specific direction to the original content.