Thursday, 13 June 2013

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

The following assumes the prognosis, “the future telco is the ISP (previous post)”.  It should be read with the traditional telco at the back of the mind.

The previous post discussed differences in the operating environment between an ISP and a telco that will affect the industry’s operations, strategy and revenue model.

This the last of a 4-part post postulates the direct impact of the internet economy on the near-future telco industry; on increase competition that would alter a telco’s culture which in turn could shape the organisation itself and its strategy.  The regulatory regime would transform as the telco industry converges with the internet/IT/digital industry and as its content-delivery infrastructure inches towards becoming a single unifying information highway for tv, radio, video, voice and text.  All these may seem far-fetched and too distant but do not mock the notion of dog-years (basically means things happen much faster in the internet industry) in the internet economy.  If you put a gun to my head, I’ll venture that many changes could be mainstream within a decade.  Related issues such as net neutrality would be covered in another post.

Competition.  Unlike the days of the voice business, the ‘new’ telco will face more competitors, significantly more.  Besides other telcos since deregulation, celcos with LTE are now serious competitors where once the fixed line and mobile operators sort of complemented each other.  They will compete fiercely on the broadband battlefield.  In most parts of Asia, fixed-line operators were once prevented from entering the mobile space but this wall is breaking down.  Not only that, there is the rise of a new breed of telco-independent ISPs, some backed by billions from established Asian business tycoons.  Even though the battle is not quite on a level playing field, fighting against brand recognition, established customer base and financial firepower, the history of innovation have shown that upstarts quicker to leverage on change can turn the tables around fast.  And incumbents (service providers and the suppliers) have baggage to bog them down.  20 years ago, Cisco was a minnow compared to the likes of Nortel and Lucent, both proud behemoths.  Nortel is now bankrupt and Lucent have merged to form Alcatel-Lucent while Cisco is an industry leader.  If the new breed of telcos and ISPs get it right and are able to read the workings of the internet economy, some could challenge the incumbents.  It is not a sure thing that the traditional telco or celco continue to reign supreme in 20 years.  AT&T has been subsumed by a once smaller rival, unthinkable 20 years ago.  Tacit support by the authorities, common in some parts of Asia can only delay this.

Telcos are getting into the media business, competing directly with cable companies and broadcast tv.  While this space has limited competitors locally, using the internet to deliver movies instantly bring them competitors outside the national border.  Even if this industry is protected for now, it’ll be a matter of time before regional media companies weighs in, say Indonesian broadcasters trying to enlarge its footprint.  Like Europe, regional integration in Asia is on the way.  This is besides the emerging branded players like Hulu, Netflix and Amazon.  While this is still early days, the direct model of the internet economy may eventually force distributors like HBO or ESPN to offer their content directly to Asian tablet users or smart tv and even more direct, the original content creators themselves.  What we are seeing in YouTube could be a harbinger of things to come. 

The BBC (within the UK) and HBO (HBO GO, only for subscribers of pay-tv) among others are trying limited delivery over the internet.  While HBO and its boss Time Warner had conflicting statements about HBO being streamed more widely, I believe it’ll only be a matter of time.  Bloomberg already streams globally over the internet.  Remember a similar disjoint with the music industry earlier?

Looking at it from this angle, should the telcos focus on what they do best, providing the best access service  and perhaps new related services for their customers, delivering myriad content offered locally or globally?  But of course in business you squeeze out what you can when you can.  They shouldn’t lose focus though, unlike in the past, there are now serious competitors.  And they are entering another sector, a ferociously competitive one.

Many telcos are moving into the digital business.  Internet data centres and cloud computing are one thing but getting into online businesses is another.  They have to compete with a significantly larger industry that is also hyper competitive.  And to do this in a ‘regulatory’ environment firmly against the dominant, not quite what they are used to.  And when once they were mostly a local (with limited regional exposure) business, they now have to compete globally.  However looking at the near-future landscape with the telco industry converging with the IT/internet industry, this may be a necessity.  But the best plans are those that integrate them into a core data business, not voice.

Culture.  As the new ‘telco’ becomes increasingly etched onto the internet economy providing the content-delivery infrastructure, and as it move more into the internet business directly as many telcos seem to have strategized, its operating culture could change.  The culture of a tradition monopoly which must have survived to these days albeit in a less severe form, is opposite to that of the internet industry.

The culture of the internet is inclusive, peer-oriented, collaborative, participative, democratic, that is, it has an open ethos (see previous post “internet business model Part 1.2 on 24 May 2013 for more on its culture).  An incumbent telco having its root first as a government entity, then as a sole commercial concern with government protection and even now years after liberalisation, operates with a guarded bureaucratic culture with a command-and-control demeanour.  Well, when you are a monopoly, your customers can’t argue much!  This culture seems to have filtered down to other telcos after deregulation probably due to seeding of executives from the incumbents.

An ISP assumes there are many more ISPs operating and while they compete, they also understand that they have to cooperate, not just within the industry but without.  The commons or eco-system of an ISP is large with many different types of partners (eg. content delivery networks, peering partnering, tiers of ISPs, anti-spam services) and very many.  They understand that without the online presence of web companies, there is no such thing as an ISP sector, unlike the traditional telco industry where its commons is upon itself.  If the telcos did, net neutrality (next post) may not have been as forceful an issue.

So as the telco become more like an internet company serving internet users and working with online partners, its operating culture should inch towards that of the internet’s.  And with that, there must also be an impact on its organisation; how it deals with partners, how it deals with competitors, how it deals with customers, how it carries out business.  And on its strategy.

Strategy.  A strategy based on data has an immediate implication for the carrier business, not least where its investment dollars go to and how it markets itself.  Should one subscribe to the notion that the future telco is the ISP, a notion that is probably not easy on the ears of long-time telco executives, then the telco quickest to execute its new data-oriented strategy would do well.  What then is a strategy based on data?  A massive topic, this is not the place to discuss it.  But what’s significant is that the strategy must embed a data business first (primary), not voice (secondary) into the overall telco plans.  And if the culture of a company is at the heart of an organisation as many business leaders proclaim and that it determines execution, grafting it with data expertise would aid re-aligning the org chart and thus the culture.

Whatever it is, industry change, the innate tech cycle, the forming industry around data, the competitive business landscape and regulations would eventually force change.

Regulations.  As the telco industry converges with the internet/IT industry, the regulatory regime will be altered.  At one end of the scale is the highly regulated regime of the traditional telco.  At the other is the unregulated IT industry where antitrust which doesn’t happen much in Asia is about all there is.  The internet industry as though on cue is lightly regulated and mostly to protect consumers from privacy, hacking, spam and in Asia, ‘irresponsible’ speech.

Interestingly the regulations of the traditional telco is anti-competitive in nature to reduce the number of players by requiring a license to operate which is the way to manage the number of players.  In contrast, the IT industry ‘regulation’ is pro-competition, dealing instead with anti-competitive behaviours by way of antitrust.  Anyone can set up an IT company.  Opposite end!

The new ‘telco’ industry obviously will be somewhere in between and being based more on the data business would likely have significantly less regulations reducing the anti-competitive ones but adding rules to protect the consumers.    I personally hope the open internet would not be impinged upon less it affects the internet economy and hence the global economy.  Indeed, in most parts of Asia, an ISP requires a license to operate but they are not onerous to obtain, unlike a telco licence.

Traffic volumes.  Even before considering convergence (radio, tv, video, voice, text over the internet), the internet-of-things (almost everything from refrigerators to traffic lights will be connected) and increased business traffic from a growing internet economy, internet traffic already grows exponentially.  Over a 10-year horizon, it is clear that ISPs need to scale up capacity of their infrastructure massively, at levels the traditional telco industry has never experienced before.  The opponents of net neutrality have a point here.  This bodes well for the product industry.  Maybe somebody smart would invent a new way to handle such massive volumes other than gigabit and terabit network upgrades.  Distributed computing, peer-to-peer computing, big data, software defined networking, new protocols and multi-casting technologies may play a bigger role.

Products.  It is obvious that the telco product suppliers focussing on the data industry would do well.  Those still struggling between voice-data divide will continue to struggle till the voice technology industry finally peters out.  While still mostly a joke today in Asia, open source networking (SDN or software defined networking is currently in vogue but hardly deployed) will finally come of age becoming the core technology for the networking industry.  This technology needs to become dynamically agile to handle security and high volumes of traffic traversing the networks.  It also needs to be programmable.  Today’s networking gear is mostly static once in operation.  But this would take a bit longer than my postulation in the introduction to this post.

In the next post, I’ll make a commentary on the issue of net neutrality, probably the biggest issue in the industry today.  It has significance to the industry.  Not least to users as it’ll likely increase costs for internet access.

My profile’s not completed here so a quick introduction.  The ph.D in the early 1980’s on LANs lead to a job operating probably the earliest campus network in this region which then lead to the internet.  Setting up a pioneering ISP in 1991 was an eye opener and you could see the massive changes it will wrought.  We all knew this but I couldn’t quite put my finger on why and how it will all work.  Since then I’ve been tracking, pondering, studying the developments but casually.  The last two years I decided to focus on that question.  I also set up an ISP for an incumbent after the first, giving me a perspective of the culture of a telco ISP and an independent ISP.  Before and after that stint, I had IT services companies to carry out internet projects.  While later it was mostly projects for data centres and ISPs, over the years it cut across B2C, B2B and the corporate sector. Being Chairman of APNIC (manages and allocates ip addresses within Asia Pacific) twice gave me the opportunity to observe internet developments across Asia.

©Chen Thet Ngian, (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 with appropriate and specific direction to the original content.

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