Monday, 7 December 2015
Dichotomy of the modern ‘telco’ Part III – cause of change
‘Once, only AT&T had the right to connect electronic devices directly to its telephone network!’
If a telco executive was told in 1989 that their voice business has peaked, their telco infrastructure would be replaced and the term ‘telco’ could soon be moot, what would he think of the messenger?
Yup...but ip-based networks today have replaced much of the traditional telecommunication networks. Voice calls are now a small part of a telcos’ revenue. Voice calling is detaching from a telco network. [The first ISP was launched in 1989.] As though these are not enough, the next change has begun which will see the ‘telco’ radically alter. This article reflects. The previous article made some suggestions towards ‘content’ strategy while the first article discussed the challenges faced by telcos.
It’s all about online services now
By online it includes content, streaming, digital services, apps, that is, what telcos call OTT services.
The change can be traced to a phenomenon of the internet economy – datarisation. When an article be it video, voice, code or text is transported over the internet, the economic value around it is reduced, some to zero. Messaging is now free, not so with sms. It affects anything that can be digitised and turned into data – products (music, books, software, media), services (phone calls, computing, ads), transactions (money, insurance) - and delivered over the internet. Thus bookstores, software houses, publishers are up in arms. In the process it also unbundles; there is a separation of content from delivery. Traditional highly integrated industries such as telcos, banks, radio, newspapers, tv re-structures as a result. Radio stations for example may not need their own radio masts anymore. Media paints a bleak picture of their demise but the concept of radio stations remains, re-imagined with a lower cost structure and able to reach wider audiences. It has a similar effect on traditional sectors that can be disrupted by information; taxis, hotels (AirBnB is really in the information business; it owns no other asset and it makes money from it), even job search. Datarisation’ tells how industries are being transformed. It also hints how the information age really works.
Let’s apply datarisation to phone calls. Voice has no intrinsic value unlike music. A telco adds no value to it. Voice charges come from its delivery through the telecommunications infrastructure it owns. If voice calls are routed over the public internet instead like with WhatsApp, the economic value around it must drop. It has. In fact a lot of conventional phone calls today are routed through the internet because it is cheaper. If you use Telekom Malaysia’s Unify, you are really paying for broadband. Phones are an add-on, calls are free. But the inflection point is with 4G mobile, accelerating the turning of dedicated voice pipes into internet pipes, and smartphones. Internet messaging (IM) startups began by offering messaging services. Growth was swift. IM then morphed to include voice. This was recent but will grow because of economics. WhatsApp call, like radio stations does not need its own dedicated network.
Voice is now merely a type of content and is detaching from a previously integrated whole
Since phone calling now do not require an integral network, economics dictate that it unbundles. The die has been cast. This also means the slow death of international calls, sms and roaming charges. In the transition, the charges are lowered as it has. Over the internet, there’s no such thing as roaming. Do you pay extra when your email crosses borders? In the European Union, it’s being removed. China has asked their celcos to reduce roaming rates.
The ISP is the telco
As voice, roaming and sms revenue drops below broadband’s, isn’t the telco really an ISP? Their traditional voice business is essentially being transferred to IM firms. Regulations can slow this but it’ll only be temporary. Better to move forward because if the ISP is indeed the new ‘telco’, the entire business model changes.
In the meantime they should of course maximise any ‘traditional’ business they can but they shouldn’t lose sight of the long term. They already missed the boat on voice 2.0.
Examples on how telcos can adapt to the digital economy anchor the article next week. But I like to end this post by urging that they look at data in a different way because by doing so they can derive new revenue streams. They have a lot of data - what Google sees, telcos do too (local) but little is done to monetise it. If a telco allows clients to upload, say security or routing data to the telco’s cloud-based analytical tool for analysis, wouldn’t those clients be delighted? Think data!
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