Monday, 23 November 2015

Dichotomy of the modern ‘telco’ - Lost in Translation

Telco = telecommunications company
Tel = telecommunications = telephone = voice  
Telco = voice company

Telcos were built on voice but with voice only a fraction of their revenue today, the term ‘telco’ is now a misnomer.  Once internet access was an add-on to phone lines, now telephones are an add-on to broadband lines.  Grasps the implications and you’ll understand how the telco industry is transforming.

The voice business model that some say many telco executives still adhere to, is passé.  And have been since the internet.  But with the data model replacing it, telcos will actually become stronger.    This is the crux of this series of five articles that will touch on change triggered by the machinery of the internet economy (digital economy), how they could respond and what telcos may look like in the near future.  Reordering of the industry is likely.  Second tier telcos that get this and it’s not as simple as it seem can look forward to the opportunity.  Coming to terms with the different environment, different operating culture, a very different business model is the first step.  Emphasis is on Asian telcos. 

As far back as 30 years, the telco industry started digitising and later embraced data technology but somewhere along the way....

Lost in translation
Remember ATM (and ISDN)?  These were strategically correct attempts by the powerful telco equipment suppliers to play in the data arena.  Most have collapse today.  And the reason is their arrogance trying to force a square rubber peg into a circular hole misreading, misunderstanding the data business.  ATM was optimised for voice, not data applications though you’ll never guess - their hype machine went overdrive suggesting it was great for everything.  Telcos bought into this and burnt billions.

Today, most incumbents in the region are executing the last part of their much vaunted triple-play strategy – video.  But is triple-play still the right strategy in an internet era?  Their shareholders should ask this.  With voice revenue in terminal decline, will this video plan follow?

There’s still money to be made from voice and they must of course maximise any revenue they can but they shouldn’t lose sight of the long term.  Reselling cable tv in the fibre bundle looks a better bet than trying to become a cable tv provider. Or the way the digital industry executes video strategies.

They don’t talk about triple/quad-play in the internet industry

Rather, it’s about content, online services, streaming.  And data services (ISP), voice app (internet messaging), video (YouTube, Netflix), gaming.  This illustrates a difference between the two industries. 

A triple-play network is one in which voice, video and data are all provided in a single access subscription.  While the telco industry bundles, in the internet industry it is left to the various players.  Users have a choice.

If telcos want in in the digital industry, a better understanding of the differing operating model and culture helps.

 “Culture eats strategy for breakfast” – Peter Drucker

It defines the business since culture affects how people behave and the way people behave from moment to moment without being told to.

The culture of the data business model, of the internet, is open.  A telco’s closed.

Traditionally the telco ecosystem is unto itself.  Integrated tightly, they own and control 100% of it; infrastructure, services, equipment, partners, customers.  Organisationally, they control from the top with a command culture.  The mentality is ‘build it and they will come’.  Consumers?  They need us more than we need them.  Partners are often viewed leerily – why should they profit from our infrastructure?  An integrated billing system is considered            customer service!  Trouble is, they are tied to 130-year thinking from that first call made.  Things have now changed but there are vestiges of such a culture. 

“Comcast this month announced an internet video service of its own – Stream – that will include broadcast channels and HBO for $15 a month. It’s only for its own internet customers” – AP, 23 July 2015

The digital industry is about partnerships

While telcos profit within its own ecosystem, it’s the cacophony of players that makes the internet’s.  And while competitive detestation is there, they understand that together they make the market hum.  Thus its culture is one of being inclusive, peer-oriented, collaborative, participative, that is, it has an open ethos.  More on culture here, but this shows the wide gulf.  This must have a strategic impact as the telco industry re-fits into a data economy.  And the irony is, many startup telcos recruit their senior management from traditional telcos!

Whatever it is, the transition is proving a challenge.

The frustrations can be felt

The telco industry calls the online content/services providers ‘OTT’.  ‘Over-The-Top’ is normally a derogatory term.

They could be smarting from losing, until the internet, their core voice business.

Research firm Analysys Mason estimates that between 2013 and 2017, voice revenue for the telecommunications sector is set to drop by US$38 billion. On the flipside, data revenue is set to grow by US$128 billion in that same period.

Maybe they also find it hard to lose control over their business since telcos once controlled everything within their ecosystem.  Now they have to cede some to the WeChats, Facebooks, Netflixs.  Maybe that’s over the top!

More likely it’s cultural, and change.  The data industry is a world apart from that of voice.  It’s not easy to adapt.  Telco executives, especially the incumbents, steep in the old culture, evolved from a regulated monopoly had a sense of entitlement.  ‘Build and they will come’ doesn’t work as before, unless you get help from the regulators.  Online, in trying to build a content business, telcos find it disconcerting that they may not come because they have choices.  Now it’s about the best value, great user experience, reasonable prices.  And talk of the great opportunity, "the fourth wave" digital services with connected cars, healthcare and the like looks different this time - it may not fall on their lap but to others who see this not as the platform but a solution design challenge.

Que Sera, Sera

Telcos should not lose sight of the changes.  The potential is now larger.  Going global was a challenge 20 years ago.  The new environment offers another chance. If they shed the legacy mindset, embrace open and play by the new rules, new business models, they’ll get there and sooner.  But not in the form they envisage.

Telcos knew for a long time that content is king and that they needed to be in the space.  This and how such a strategy has morphed are discussed in the next post.


©Thet Ngian Chen, (2012, 2013, 2014, 2015).  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 Thet Ngian Chen and with appropriate and specific direction to the original content.

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