The Telecom Industry: Stupid and Getting Stupider

Written by on April 11, 2013 in BillingViews, Opinion with 1 Comment

The telecom industry often seems like a bunch of kids arguing over who sits where at the lunch table. The teacher shouts at them to sit where they’re told while kids from another school sneak in and steal their lunch. After a brief period of united outrage, they go back to arguing. The failure to change in the face of competitive threats isn’t only due to myopia – global economics and outdated regulations play huge parts. But it sure seems like the industry most often responds to these problems by falling back on old, divisive tactics rather than pulling together for its collective benefit.

Look at Spain. It’s economic landscape is bleak with massive unemployment, onerous government debt, and few signs of recovery. Telefonica has taken it all on the chin. Seemingly out of desperation, the operator announced a 25 percent cut in its high speed broadband price in a one year promotional offer meant to stave off competition. Remember that Vodafone and France Telecom recently announced plans to invest €1 billion to build out fiber optic, high speed broadband networks across Spain. So Telefonica is basically circling the wagons and falling back on old tactics – cut the price aggressively with a promotion to lure in customers and lock down market share before the enemy arrives. This desperation move flies in the face of all of the discussions around the industry that address how operators need to get away from self-defeating price wars and move up the value chain with services to win. In a devastated economy, it doesn’t look like Telefonica has much of an option to reinvent itself especially as its peers are teaming up to steal its seat at the lunch table.

On the regulatory side the equation, consider the situation in India. India’s Supreme Court is partially backing its Department of Telecom’s aggressive push to halt cross-zone 3G pacts among operators. India is carved up into whole bunch of little zones where operators bid for spectrum licenses. As a result, no single operator is licensed to provide 3G services across the entire country. So, wisely, Bharti Airtel, Vodafone India, and Idea Cellular teamed up to share their licenses in order to offer pan-Indian 3G services. But then Reliance Communications began complaining to courts and regulators that this cooperative was hurting its ability to compete. So the arguing over who gets to sit where (and with whom) at the lunch table took off. After a significant amount of back and forth in various courts, India’s supreme court has finally ruled that Bharti Airtel and its partners can continue to provide services to existing customers in zones where they don’t own spectrum licenses, but they can’t acquire any new customers in those zones. So, it’s like the teacher told you that you have to sit in your seat, and you can share soup with your friends, but you can only eat it if you use a fork.

The problem with both of these scenarios is that they are ultimately self-defeating for telecom. As long as operators respond to intra-industry competition with price wars and are limited by regulatory structures that completely fail to recognize the inter-regional, international, and global nature of the communications business, telecom will likely fail to respond appropriately to inter-industry (or extra-industry) competitive forces.

The best idea I have heard so far for changing obsolete modes of thinking and regulations is from Clarity Founder and Executive Director Tony Kalcina who argues that we must push for global, inter-industry cooperation on broadband networks. “The Telco industry is dying from a thousand cuts – it’s divided,” Kalcina says. He rightly points out that every nation is carved up among several providers, but over-the-top competitors offer value without geographical restrictions and have achieved larger scale than many predicted. As a result, “the only way to compete is for Telcos to unite, and to do that at the wholesale backbone layer,” Kalcina says.

He notes that a theme that emerged from Mobile World Congress was that operators believe regulators are treating them unfairly because OTT players “don’t pay their way.” Chances are improving that OTT players will ultimately have to pay a bit more based on the resources they consume, “but I see this as transitional,” says Kalcina. In other words, telecom operators can’t thrive if they are going to rely on regulators to help them tax their new competitors a bit more.

What will allow telecom operators to thrive, says Kalcina, are “economies of scale and lack of duplication,” which are most achievable if the industry can pursue “collaboration at a global scale.” There is precedent for this. As a former satellite engineer, Kalcina believes the efforts in the 1970s that established global satellite communications networks provides a model. “There needs to be an ITU initiative to have a global broadband network; let’s set aside this much GDP…each country looks after its operations, as is the case in the satellite network, but ultimately there is one global broadband network provider,” Kalcina says.

Of course there are all sorts of inertial factors that can, and would, stand in the way of this kind of global cooperation. But logically speaking, this approach would dovetail to some extent with the shifts we are already seeing towards managed services in the network. Operators are already trying to get out of the cost, risk, and complexity of the so-called “iron” business. Many want to focus more on how the network is used – i.e. value added services – and less on building, maintaining, and replacing successive generations of increasingly commoditized network technology. A global broadband network, collectively operated, could reduce everyone’s cost and risk.

Here’s the catch; in a collective network environment, operators would be forced to become more competitive, creative, and innovative with regards to services and customer experience. There would be no more room to fall back on old tactics or to generate massive revenue thanks to aging regulatory advantages. A massive change like this could not happen overnight, and it may not happen at all. But the question isn’t whether this vision would benefit the industry, but rather which operators could actually thrive in a cooperative environment?

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About the Author

About the Author: Ed Finegold is CSO for Validas, a company that specializes in personalized user experiences that leverage analytics-as-a-service to simplify mobile buying, selling, pricing & billing. Ed has been a regular contributor to BillingViews. .

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  1. Gabriel Chagas says:

    Ed,
    Great topic. Inevitably CSPs will need to stop this race-to-the-bottom and unite their efforts on rationalizing their massive CAPEX investments. This is already happening in the RAN infrastructure (especially in LTE deployments) and will eventually reach the backbone and core network infrastructure. Indeed interesting times ahead.

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