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, 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.
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