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Telecom companies at risk of becoming mere utilities

Telecom companies at risk of becoming mere utilities

For telecommunications companies everywhere, the future has "catch-22" written all over it. Network operators face disintermediation of their customer relationships and commoditization of voice and data services, while at the same time they are called upon to invest significantly in deploying new network technologies to meet exploding bandwidth demands and QoS requirements. Simultaneously, network operators face changing market dynamics and a host of new competitors.

Wireless devices are set to outnumber the world's population by the end of 2012, according to data from Cisco Systems. IDC predicts broadband bandwidth demand to increase tenfold by 2015. Couple these statistics with the proliferation of independent access points and the disintermediation of the billing relationship by "app stores," and one could easily argue that network operators are on the road to mere utility status. Complicating everything is the fact that in many cases, the trajectory of current revenue models does not support future capex requirements. [Also see: "Cisco: Networked devices will outnumber people 3 to 1 in 2016"; "Exponential bandwidth growth and cost declines"]

With technology evolving in every direction and business models under threat, network operators are obviously at a critical juncture: They need to "pivot" by imagining a prosperous future for their business and developing a path to realize that vision. They also need to realize that they can't do it alone.

ANALYSIS: 'World's largest' telecom deal turns out to be a dud

Much of the disruption at work in the global market is the byproduct of innovation driven and/or enabled by startup companies, which imagine a future unencumbered by history. These nimble innovators are the source of much of the change that is rewriting the rules in the marketplace, but they can also be the source and inspiration for the reinvention that network operators need.

Network operators need to expand network capacity in the face of traffic commoditization and margin compression. Yet they also must carefully balance capex investment and traffic revenues; this has invigorated investment in dynamic network management technologies, including virtualization, and innovative infrastructure architectures, such as small cell. Startup companies based in Silicon Valley and other innovation centers around the world are driving many of these advances.

While these new technologies hold promise to rationalize the provisioning of basic network capacity, the more significant challenge for these network operators is to identify, develop and deploy new "value-added" services that leverage their network infrastructures, customer relationships and billing/servicing capabilities.

Virtualization provides an opening for telecom companies to leverage their inherent infrastructure advantages into new business opportunities, but the history of innovation by these same network operators has been less than impressive. At the same time, startup companies are the most efficient innovators on the planet. As such, there is a clear and compelling case for collaboration between established incumbents and disruptive innovators.

Unfortunately, most corporations fail in the implementation of their collaborative programs. There is, in effect, an impedance mismatch between the world of the established corporate leader and the disruptive startup. These are two different worlds, with different rules and requirements, tolerances for risk and reward, resources and definitions of "fast."

Overcoming these challenges isn't easy. It requires network operators to develop new skill sets in quickly bringing innovative products and services to the marketplace -- in partnership with disruptive innovators. Success depends upon consistently identifying these startups and leveraging them through the telecom's market reach, and a business architecture that provides an "open platform" that facilitates the rapid testing, deployment, validation and scaling of new services.

With an open platform, network operators position themselves to rapidly evolve their product and service offerings in response to market opportunity and/or demand. But the opportunity flows both ways. Leveraging their networks and corporate resources to address distribution, QoS, marketing reach, billing and customer support, network operators have the opportunity to position themselves as the infrastructure and go-to-market partner for young, innovative companies.

This positioning not only builds on the inherent strengths of a telecom but offers disruptive startups essential resources that would otherwise be costly (in terms of time and investment) to develop without necessarily increasing their enterprise value. The spectrum of managed services innovations should provide particularly attractive collaboration opportunities between network operators and startup innovators. Small business and consumer offerings are interesting initial entry points for this kind of collaboration.

Embracing an "open platform" for delivering next-generation information services to customers will depend upon the ability of network operators to engage, on a sustainable basis, with startup companies based in places like Silicon Valley. The onus for outreach to these communities will lay primarily with the network operator. This too will require the development of new business skills and "DNA" by telecoms. Innovation models based upon corporate venturing provide some guidance as to how to develop and successfully maintain these outreach efforts. The path isn't easy, but it's critical that telecommunications companies embark on this journey.

Read more about lans and routers in Network World's LANs & Routers section.

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