So here we are in a brand new decade; in many ways, escaping from the “Noughties” won’t be all bad for the communications industry. After all, we weathered the telecom freeze in the early 2000s, which decimated the ranks of telecom equipment makers, forced consolidation among some carriers and increased regulatory actions in many parts of the world.
And just for fun, the decade ended with the entire world deep in the trough of the worst economic recession since the Great Depression. But from the start of 2009, when things looked grim indeed, we’ve managed to hold our own even as other industries – automotive, retail, travel and more – see their outlooks grow dimmer by the day. People didn’t cancel their mobile plans or cable service in droves; rather, communications has become so intertwined with our daily lives that these services tend to fall lower on the list of things to cut out of a personal or business budget.
But while the communications industry appears to be entering the second decade of the 21st century in relatively good health, it doesn’t mean that providers, vendors and integrators can simply go about their business as usual. Opportunities abound - like the growth of mobile data: new generations of smartphones, netbooks, tablet PCs, Internet TV, 3D TV and so on that will chew up bandwidth making technologies like fiber to the home and 4G/LTE mobile networks essential. New concepts like cloud services also offer great opportunities. But challenges like maturing markets, falling margins and being squeezed by other players in the value chain also lurk and operators will need to be vigilant in order to ensure we don’t slide back to where we were at the start of the last decade.
Can You Monetize It?
About 10 years ago, a common phrase we’d hear around the industry went something like, “If you can’t bill for it, it’s just a hobby.” Well today’s mantra might be, “If you can’t monetize it, why bother?” This is because in today’s fast-moving world of next-generation digital services, operators can’t afford to spend a lot of money on something without any hope of seeing a return.
A case in point is 4G, which mobile providers are spending billions of dollars on to upgrade infrastructure in order to have sufficient bandwidth to accommodate mobile television and other cool so-called over-the-top (OTT) services. Field trials for 4G/LTE are happening today, and we expect real rollouts to begin in earnest over the next couple of years.
But the natural question is can providers monetize 4G technology and services? Can they get the return on the bandwidth after investing billions of dollars? In today’s world where content trumps bandwidth, it’s the OTT players that seem to be monetizing mobile data more visibly than the underlying network providers. Sure, Sprint may tout their 4G network as the first such one in the U.S., and AT&T and Verizon have dueling maps showing their nationwide data coverage, but can operators really get a good rate of return on that investment if the value add is going to the content provider and net neutrality laws stop operators from providing different grades of services at different prices?
The relationship between network operators, service providers, content providers, device makers and the whole value chain is completely symbiotic – it’s just that they don’t realize it yet and everyone is fighting for a piece of the action regardless of the wealth and health of the other guy. There is a lot of “my bit of the boat’s not on fire” thinking. But high-speed services won’t fly without content; content won’t fly without good devices and devices won’t sell if the customer experience is poor because the networks are too slow. Without everyone doing their bit well, nobody in the chain makes money, but to date at least everyone in the chain seems intent on grabbing someone else’s piece of the pie rather than focusing on mutual gain. So we see service providers launching app stores while Google buys dark fiber and launches phones.
Joining the Dots
But sooner or later the inter-dependencies of the value chain are going to dawn on everyone. So I think the next decade is going to be about people coming to terms with and monetizing what they do best (Michael Porter’s core competencies); i.e. understanding where they fit into the value chain and where to make money.
But does that mean that operators are destined to become mere bit shifters? No, not really. What they do really well is run large infrastructures very reliably, serving large customer bases with pretty good services. What they don’t do so well is rapid innovation and fast product evolution. Equally, a lot of companies in the value chain are good at building innovative products but are very inexperienced at running 24x7 “five 9s” services.
So one area that’s ripe for evolution in the growing partnerships between value chain players is for operators to become more service enablers rather than just service providers. By that I mean providing additional enabling services on top of bit transport services such as authentication, CRM, billing, settlements, security and so on. Just as FedEx will not only deliver your parcel but handle the customs and tax issues for you if you want, there’s a lot of additional value that operators can drive out of the emergence of a rapidly growing variety of new services. But to be successful, they have to do this by adding value from what they already do well rather than chasing rainbows and dreaming that they can become something that’s not in their DNA.
Cloud services seem to be an answer here. After all, the original cloud service was the network. So whether it’s exposing enabling services to other providers and taking part of the revenue for doing so, or partnering with others to provide brand new services to their existing customers, cloud seems to have a big role to play in the next decade for operators. So it’s not surprising that we recently launched a cloud services initiative within TM Forum, leveraging our already extensive membership of communications and IT players but inviting in major enterprise users like banks to explore how to monetize and grow cloud services.
At the start of new decade, the TMT (Technology, Media and Telecommunications) market is worth about $4.3 trillion with communications about a quarter of that. 2010 marks the start of a new chapter where we could see the communications industry take an increasingly larger slice of that business, and by 2020 (or probably well before) we’ll know whether the opportunity was grasped or slipped away!