Unbundling the telco
The telecoms industry is torn between two forces:
- the desire to maintain control over every stage of production: retail, services, network delivery and user equipment.
- the reality of the Internet and open standards/open source forcing these things apart.
We're finding it interesting to compare and contrast some of our own analysis with that of leading thinkers in the field. John Hagel is one of the "must read" writers on the matter, and he recently re-capped his thoughts on unbundling of the enterprise. You can go read the original, but the heavily edited summary is:
"I believe that most companies are an unnatural bundle of three very different types of businesses: Infrastructure management businesses, Product innovation and commercialization businesses, Customer relationship businesses. These three business types have very different economics, skill sets and even cultures, yet they are tightly integrated into most companies today."
So, what business are you in, again?
What we're really debating is where the "cleave" points will be, should telcos start to break themselves up and/or re-structure and re-focus. So far, operators have mostly been trading vertically-integrated parts of themselves (Sprint and Verizon's local networks to Embarq and Fairpoint Communications respectively, or BT's spin-off of it's mobile arm, O2, only to be picked up by Telefonica). They've also been spinning off ancillary businesses like yellow pages directories.
Our take has been that there are four generic strategies for the unbundled Telco 2.0 world:
- digital lifestyle brand (which very few telcos are in a position to execute on, and as most have indifferent brands, we don't tend to dwell on it),
- protection/product (extending and expanding the current product set),
- platform (relinquishing some of the customer relationship to focus on the nuts and bolts of delivery of 3rd party devices and services)
- pipe (which can be very attractive if done right, as there's plenty of mileage left in creating new ways of tying flows of money and bits).
You could maybe add a fifth which is "diversify", which we'll come back to later.
Too much duplicate, competing infrastructure
John's vision of telecom is already partly true, in that much of the cellular infrastructure is managed by specialists like Towerstream and Crown Castle. Ericsson has done conspicuously well by moving into network management services, and taking that function off the telco. Many telcos have outsourced their IT. Indeed, he states this himself:
"The first wave of outsourcing can be understood as the systematic carving out of the infrastructure management businesses from companies..."
He goes on to predict:
"...we're just on the cusp of a second wave that will unbundle product innovation and commercialization businesses from customer relationship businesses."
Show me the product
If Apple's iPhone is significant for one thing, it is that their Visual Voicemail capability suggests the end of telcos and NEPs as the primary drivers of core product features. Apple's product didn't come from an interminable sequence of standards committee meetings in Geneva and Hawaii. Nor did Skype. The complete integration of entertainment, information and communications functionality is more likely to be executed by a Nokia, Sony or Apple in partnership with services companies like Yahoo!.
Our still-open Voice & Messaging survey is also yielding some interesting results. By far the most popular response to the question "Where are there opportunities to raise additional revenue from voice and messaging services?" is to open up APIs into the OSS and BSS systems. Amazon would be the classic example of such a business, with own-brand retail complemented with delivery of multiple 3rd party retail sites using white-label web services and logistics.
New faces, old business models
John also uses The Gap as an example of how you can't climb your way out of a strategic hole by just changing the guy holding the shovel. One of the findings in our recent survey was how keen respondents were on bringing in fresh blood from outside the industry into the "marzipan layer" of middle management. Probably a necessary action, but not sufficient if the vertical structure is maintained.
Top dog or tired mutt?
Developing the theme of structural change, the influential John Kay writes in the Financial Times about how companies that are at the top of their field rarely regain that position once lost. He muses:
Can telecom giants reinvent themselves where control of the last mile of wire is no longer decisive? When the historic sources of underlying competitive advantage have gone, businesses rarely return.
The exceptions he quote are well-known but nonetheless important. Most notable perhaps is IBM, which moved from a product business to a customer service one where a server and copy of Websphere just turned up as part of the deal without having to be sold separately. The nearest telecom equivalent is probably BT, who have diversified into enterprise services and solutions. Their strategy is not to win RFPs for network services, but to bypass the whole process by being in a smaller field of services businesses -- ironically butting up against IBM in the process.
We've structured our next Telco 2.0 event to debate these very issues, and you'll be able to hear from and challenge participants from leading network operators. We've also picked on one promising area for diversification, namely advertising, which has its own work stream at the event, plus a telco-centric market report being published next month.