Opening up networks (Part I): There’s nothing wrong with being a plumber, if you have a really cool toolbox

August 25, 2010

 

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” Mark Twain

The Internet has developed an annoying habit of eroding 20th century business models that were based on the artificial scarcity of some resource or service. The music recording  and newspaper industries have been grappling with this difficult truth, because their business was based on the belief that the media distribution mechanism was what had value. The whys and wherefores of these economic effects are an extensive and widely discussed topic, so you can do the research if you’re interested, but while we’re on this subject I’d like to highlight one of the best articles I’ve read recently: Jeff Jarvis’ summary of how the relationship between privacy and publicity has now inverted.

So anyway, back to data pipe operators. There has been a storm brewing for the last decade: I’ll just recap on the main “threat” for the benefit of anyone who isn’t familiar with this topic. In telecoms we have an industry built historically on voice and messaging services. Direct user-to-user services. The IP revolution, and convergence of all services onto this medium, has meant the end of vertically integrated services that are tied to the network. When communication services become decoupled from the transport network the old-world services lose their scarce status. Do you remember the news headlines when Skype began to get popular? Just wait and see what happens after today’s Google Mail “voice” kick-off.

Traditional voice minutes make juicy profit margins, whilst the data offerings that replace them do not. We have a digital communications industry converging on a commoditised data transport layer where price is the only key differentiator.

With the price of data connectivity tumbling, those margins will eventually become, in the words of Mr Creosote’s maître d’, “waffer thin”. Meanwhile the delta between data revenue and bandwidth usage is increasingly at an alarming rate, particularly for mobile operators. This is a big problem when you have a one-sided business model, where revenue comes only from selling these products to users.

And thus the scene is set for the following premise:

Long term growth in the telecoms industry will not come from just selling  connectivity.

Telcos’ (especially traditional, retail telcos) have a psychological inhibition – they really don’t want to be straight utility providers. After a century of business as usual, there is an entrenched belief within telcos, almost a sense of entitlement, that they should be the ones selling communications services to end users.  Consequently they fail to concentrate on what they still do best  – delivering bits – and instead we get what Rudolf van der Berg calls Apple and Google envy. The aspiration (as this 2007 Gartner report makes evident) is to be in consumer and enterprise IT “services”. Offering services is cool, being a digital plumber is not.

When the threat of ‘over-the-top’ providers began to take shape, somebody somewhere began talking about telcos being demoted to “dumb pipes”. Dean Bubley has pointed out that whoever coined the term “dumb pipe” has cost the industry untold millions. Indeed this negative response doesn’t get us very far. Particularly when, in reality, what is being threatened is merely the unwarranted assumptions of the industry. One of the knee-jerk reaction of those concerned was to start demanding payment from the likes of Google, on the grounds that they were getting a free ride.

The prevailing trend has been to go on the defensive, rather than changing the mindset of the business by considering the possibility that these threats might actually be perceived as opportunities. I am amongst those who think the industry needs to take a step back and accept that being a plumber is fine, when you happen to be in possession of a very flexible, intelligent toolbox. A toolbox that can create new value from the network and its data, and ultimately introduce new ways of doing business. After all, the network operator has the potential to understand the customer better than anyone, as Alan Quayle is keen to remind us.

Imagine the possibilities that could arise when we create an interface between the transport network, including all the high value data on it, and those who are best at innovation: software developers. In future posts on this topic I’ll take a look at some examples of what might be possible.

 

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