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Telecoms On The Cusp
Peter Cochrane, ConceptLabs CA
There has never been a time in the history of telecommunications and IT when we have had so many new and exciting technologies available in such a great abundance, and at such a high quality and low cost. Almost every aspect of the industry has now been commoditized with falling prices and margins for raw bandwidth, connectivity, mobility, storage, processing power, terminals and all base services. Companies and individuals are awash with products and offerings to the point where they often find it difficult to fully subsume the concepts, let alone see them in the context of their own business operations. It is in this direction of service management where operating companies will discover and regain the margins they have enjoyed for past decades. Telco customers now assume all of the basics will be available at a low, and falling cost. And those operators who stick to the old formula of being just a service provider may fare well, but they will have to become a COSTCO warehouse operation of massive volume and small profits.
There are only two fundamental routes to success facing network operating companies over the next few decades: Modernise infrastructures; Outsource and streamline operations; To reduce staffing by over 70%; And/Or get into the management of customer network operations and business services. The twin threats of the Internet and VOIP (Voice Over IP) will soon take down the bread and butter revenues of telephony, audio and video conferencing, to be followed by much of the mobile infrastructure and services. The good news is it can't happen instantaneously, it will take time, and perhaps enough time for operators to reconfigure and reinvent themselves. But for sure, if they sit still, they are staring death in the face. All the technology to replace the PSTN, ISDN, Data Lines, and VANs et al at 10% of their current operating costs is now available. It is only a matter of time and the clock is ticking! The last time we saw such an epoch the Canal Operators were asking of the Railway Companies - why would coal want to travel at 100km/h?
Mobile operators cannot afford to be complacent either. Despite the fact that the government induced 3G fiasco is almost over, the massive investment right offs associated with licence purchases and failed network and service investments have left many permanently injured. And on the horizon is the oblique threat of WiFi (and future generations of very low cost wireless services) which are already biting into data connect revenues. As an avid road warrior I have, in the past, mainly used 2G for my laptop data connection as I travel across the planet, and could not get 2.5G to work; it was too clumsy and convoluted, not to mention a complete waste of time at 18kbit/s. So my mobile phone bill has dropped by over 80% in 18 months as I can now generally find a WiFi connection or wire LAN in hotels, companies, universities, and airports across the planet. Interestingly, I have found that over 30% of these are provided free as a part of the overall facility charge, or as an act of pure benevolence. It is interesting to reflect that the provision of between1.5 - 10 Mbit/s connectivity to a hotel bedroom now costs less than the hot water, shampoo, soap and towels necessary to take shower. I don't expect these to appear itemised on my bill, so why should my Internet connection?
So what happens next where are the pressure points? For many countries, especially in the EEC the joke they advertise and supply under the banner of broadband is so out of kilter with the growing customer expectation (and experience abroad) that new forms of rogue network are springing up to sideline the operating company offerings. When the customer base at large is purchasing machines with 3GHz clocks, 160GByte Hard Drives, 1Gbyte RAM, 100Mbit/s LANs, and 54Mbit/s WiFi, try selling them, ADSL at 0.5Mbit/s or less. No wonder they are rebelling, they need far more than the asymmetric data dribble on offer. File sizes are increasing and transfers are not asymmetric! Moreover, within 3 to 5 years we will be seeing PCs with 10Ghz clocks and 1TByte hard drives, and at the same time no significant change in high-speed network offerings from the incumbent operators. Customers are not going to be pleased, impressed, or satisfied until they can get access at 100Mbit/s at a really low price.
Unfortunately Telco's are reaping the reward of one of the dumbest decisions in their 100-year history. Not installing fibre in the local loop when it first became cost effective to do so in the mid 1980s is now costing them dearly, and they will be hard pressed to make any significant ROI for their continuing investment in copper based plant and services. Even worse, they no longer have the rich ROI and budget surpluses they enjoyed in the 1980/90s and it is going to be very difficult to wind back the clock. In the mean time community based MeshNets and ParasiticNets are springing up along with competing commercial wireless offerings to service customer groups that are dissatisfied and need real bandwidth. On the up side, many Telco's have fibre to the local switch and can get into the local loop with wireless at minimal cost should they so decide. And as a starter they should at least cease all new copper installations and start the long overdue roll out of fibre. Perhaps their key asset is now their underground duct network and ability to reach over 95% of the population!
Why is all of this really important? The GDP of any nation is strictly tied to the ability to move atoms and bits. Any country with an inadequate road, rail, air, and bit transport infrastructure will see a reduced efficiency and earning capacity - in short they will be poorer for the lack of investment. When countries in SEA are upgrading from 10 to 50 and up to 100Mbt/s on fibre to business and home, with no channel sharing, it is clear that they will realise a significant advantage over many competing countries. The music, movie, games, entertainment industries, plus the creative and eCommerce sectors will be held back by the inadequacies inflicted by copper based broadband installations. In the same way the RIAA are failing to control pirate MP3 music distribution, then network and service companies also stand to lose control for the same reasons - the customers perceive that they are being short changed and ripped off. The really bad news is: DIY networking is getting easier and cheaper by the day, and new forms of distribution are emerging that by-pass all existing installations in the same way Kazaar look-a-likes are going underground to slip from the grey economy into the black, to be invisible an even more damaging than their genesis - Napster.
Could it possibly get any worse in the local loop? Oh yes! Look out for the oil companies, superstores, schools and anyone else with cheap bandwidth in a community. For less than $1k they can set up a wireless node to provide 54Mbit/s access on the back of their primary business, more or less as part of their loyalty programme, if they so wish. Follow that with WiFi enabled mobile phones and VOIP enabled PCs, and suddenly we also have a route to far cheaper mobile telephony connections. Also, just consider what happens as RFID tags are rolled out along with more bandwidth to every EPOS (Electronic Point of Sale), which by the way will soon be equipped with WiFi and BlueTooth enabled chip sets. We then automatically have a pico-cellular structure that puts bandwidth where the people and devices cluster, where the true demand is. Follow this with WiFi enabled cars and truck, and I think you can also see a new form of dynamic vehicle hopping (Smart Dust like) network for non-real time data applications.
For the past 15 years the global telecoms industry has been between a rock and a hard place, but since 2000 that rock has become bigger and the hard place even harder. The rock of liberalisation, regulation and control, and the hard place of competition, technological change, and increasing customer demand have simultaneously driven expectation up and revenues down. The industry is now experiencing what the computer system and chip sectors have seen as norm for decades, but with faster reducing margins. Much more for much less in a shorter and shorter time frame for a constant or falling $ return is the established pattern for all commoditized IT - in short a buyers market. The difference is that the Telco's are over 100 years old and have hard wired copper mind sets making it difficult for them to adopt new technologies fast enough, whilst simultaneously adapting to new operating regimes, at a fast enough rate to fend of the competition and satisfy their customers.
This is all a very tough call, but I would contend that it has never been easier to make money and be successful in the networking sector. By bending to the will of the customer, by letting them subsume the responsibility for installation of wireless in the local loop, operators can save a fortune in plant and people costs. And further, any need for maintenance support can be levied in the same manner as the computer and software industries, ie it is no longer a for free 24 x 7 service - it costs. In addition, the need for IT support in the face of a rising tide of security problems including worms, viruses, trojans et al lends an opportunity for the creation of a whole new raft of services that are ideally network rather than edge centric.
I don't fell pessimistic about telecoms, quite the reverse, there has never been a time like this, when so much positive change can be realised so fast for so little expense. If the industry and operators can shed 100 years of legacy thinking they should see a prosperous future. But they have to get ahead of the wave instead of being behind IT!
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