Thursday, April 21, 2005

Apocalypse Now or only The Perfect Storm? 

In June 2003 I gave a presentation at the VON Europe with the title VoIP and the Telcos - Is there a life after death? In this presentation I used a slide stolen from Richard Shockey asking the above question and the resumee was basically an answer to:

So what can a Telco/ISP provide?
  • The broadband access to the Internet
  • Part of the backbone
  • The gateway to the PSTN
  • Routing of the E.164 number to this gateway
  • ENUM Registrar and ENUM Nameserver service
  • VoIP server hosting (residential and IP centrex)
  • Domain Name hosting
  • Circle of Trust for accounting and billing
  • Intelligent packaging for Joe Doe users
And where is the beef?
  • VoIP and video users need broadband - Boosts DSL rollout - $$/month
  • SIP Server hosting - $/month
  • ENUM hosting - $/month
  • Gateway operation - Incoming calls - $/call on PSTN - Outgoing calls - $/call on Internet
  • Participation in trust circle - % on each transaction - Certificates $/month
  • Sell books, info, sex and flowers (transfer premium rate services to assertions)
  • Move up the value chain to services and consulting
Of course at this time I had no idea about Skype and now Skype has already taken some of this positions. It is already too late for the telcos?

Reading the Telepocalypse entry from Martin yesterday: The Telecom Earthquake reminded me on my old presentation not only because of the name relation. He states:

It would be a tragic mistake to underestimate the potential market power Skype is accumulating. According to Skype’s own figures from VON Canada, they’re sustaining a growth rate of 1000% a year. Just another 2 years of this growth and they would have over 200 million concurrent users online. This is not beyond plausibility given how Skype and broadband are symbiotically driving adoption of one-another; the addressable market is exploding too.

That means even if you’re a mega-telco — a Verizon or a Vodafone — you’re screwed. You can create your own Private Voice Application, and start marketing it to your early-adopter users, but who ya gonna call? Ain’t nobody but Skypers out there. Want some Skype presence in your Vodafone-branded VoIP app? Gonna cost ya!

So are they screwed? Is it really Apocalypse Now?

Before I try to answer, lets first look on another blog of the day: James Enck, reporting from a panel discussion he moderated at the ECTA conference in Barcelona - Whose disruption is it, anyway?

Moment of the session, from my point of view, was some fairly impassioned questioning from a representative of a large European cable company. "We have invested heavily in a network and have to guarantee we can service the debt associated with that investment, so why should we tolerate services like Skype and Telio on our network?"

I thought the responses from Espen and Michael were diplomatic, but unequivocal - (I paraphrase) these are the sorts of developments inevitable in an IP world, and you should have been prepared for them. On the one hand, they may serve as accelerators for your sales of broadband connections (a message I have been hearing from Vonage and others in the space since the beginning). On the other hand, the other impacts they may have on your business are down to your cost structure and strategic positioning, which is nothing to do with us. My unstated thoughts at the time were: "the Skype client assigns itself a random primary IP port, with port 80 and port 443 as alternatives, so exactly what do you propose to do about it in any case? It's not what you want to hear, but the only option is to learn to deal."

Here also came to my mind the presentation Sir Terry Matthews (Founder of MITEL, Newbridge etc. etc.) gave at the last Fall VON in Boston with the simple title "Shifting Gears". In his presentation he talked about disruptive technologies starting with the canals in England replaced by the railways and continued via Coaxial Transatlantic Cables replaced by fiber and ending up logically with broadband and IP. All these disrupting technologies caused always and will cause sunk or stranded costs by other investors.

I am not a Sir and simply say: Sh*t happens.

On the other side, as I marked bold in the above statement from Espen and Michael:

... the other impacts they may have on your business are down to your cost structure and strategic positioning, which is nothing to do with us.

I remember a presentation some years ago at a Telemanagement Forum Conference in Las Vegas, where an Analyst presented a survey made by his company on DSL roll-out cost of providers, and he said the CAPEX and OPEX varies depending on how well the providers did their operation and administration between $200 and $1400 per line. Astonishing.

It is obvious that with a monthly fee of $50 for the customer (at this time) you may never be able to service the debt associated with that investment if you are in the upper region of the above range.

A very similar thing happened three years ago to the mobile operators with the weird licence fees for UMTS and the obligations to set up a costly network nobody uses because of the fees charged.

So if you are unable to do your business well, why should to make your customers responsible?

On the other hand, and this is my last hope for the telcos: If they convert to broadband access providers (a business Skype and Microsoft do not want to be in), basically be ISPs AND do their job well, I still see only The Perfect Storm.

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