There is a lot of fear in Telecom about becoming a “dumb pipe.” Is this a problem and if so, why. Let us start by looking at revenue to market cap and see if that provides any insight. I’ve created a real-time Google Spreadsheet that pulls in the current market cap for 6 companies in each sector (Internet vs Telecom) and their revenues for 2008. The implication is that the “over the top” players get approximately a 3x boost in market capitalization by virtue of their business. In other words, if the same multiplier ratio of capitalization to revenue was given to the traditional telecoms companies, their market cap would triple. So what is going on here?
A great article on Light Reading titled Amazon lessons for telcos features Amazon’s CTO Werner Vogel’s talk about opening up the Amazon platform to third party developers and what lessons telecom companies can learn from the Amazon experience. This means opening up the telecom platform, letting various people experiment with the system, and leverage the key assets telecom companies have – billing relationships, device details, and location. However, that being said I am going to go ahead and make an assertion that this is actually not in the telecom DNA. It is not that this is impossible, it is just that you can’t get there from here. This observation follows directly from my earlier article titled Lack of Smart Engineers Considered Harmful. Here is a great quote about this:
“[wireless operators] seem frightened of their own networks, and are heavily dependent on consulting from their suppliers.” – attribution withheld on request
If you are frightened of your own networks, and you are reliant on consulting, you will never be able to make the transition from being a dumb pipe provider. I can’t fathom how you can claim to run a network that is not a commodity if you can’t even operate it in-house. Giving hundreds of millions of dollars to consulting companies to differentiate you will have only one consequence: Consulting companies richer by hundreds of millions of dollars, while you get generic networks that are late and over budget. There is a lot of value to be squeezed by owning the “deck” on a mobile phone, but as we have seen with the iPhone and Android and the older Palm Treos, the majority of the users of more sophisticated platforms are going to turn the telecom into a bit pipe while they happily use the services on top. The rate at which Apple and RIM are taking profit share should be a clear indicator that the old model is being cannibalized. I am a telecom guy to my core and even I will admit that getting insanely great people to work at a telecom company, especially software geeks, is next to impossible – and it’s the software, stupid. Of all companies in this space, I believe Comcast gets closest to getting it, hence their hire of some insanely great people who understand systems – Mark Muehl, John Schanz, Kevin M. et al.
So, to sum up:
- Stop being afraid of your own networks, take charge. This is not rocket science.
- Hire the right people.
- Accept you cannot be all things to all people. No matter how good you are, someone will come up with a better application that runs over your pipe.
- Focus on getting cost out of the network, cut the organization down (do you really need a director of test?). Automate everything, so you can make a decent margin on the dumb pipe.
- Be faster (see #1). By definition, if you don’t own your own network, you can’t react quickly.
- Partner with people, make your platform open so applications can use your core strengths and work with you, as opposed to working against you (hello VZ Wireless, how is that GPS lock going?)
There are probably more to be added, but right now, this is about the limit of what I believe is achievable.