Wed 31 Jan 2007
That the traditional telco’s business model is going down the drain is no news for some time now. The important question is what is going to replace it.
The paradigm shift that is taking place right now is that the infrastructure owners are not the providers of the services that they enable customers to access. But they are indespensable for accessing them. In other words, no portal run by an ISP was ever succesful but Google or Yahoo would have been nothing without the ISPs.
Trying to deliver more than that – especially all kinds of content – is a delusion many operators suffer from. It brings exponential increase in complexity in both company’s operation and underlying systems. I doubt whether revenues achieved will really pay for the expenses necessary to cover this complexity.
Some try to address churn (increase customer retention) through content and additional services, which is a mistake. No infrastructure owner can even remotely hope to provide a content or service available only on their network that would outweight all that is available on the Internet. Customer satisfaction is a matter of price and perceived quality of the access service provided, not of add-ons.
The harsh reality is therefore that what the infrastructure owners can charge is the perceived value of having the access to all that is available on the Net. This access is an easily comparable commodity that many players deliver. Which means prices are low and will get lower. That in turn means margins will have to get thiner too.
So to be really successful in this market a company should embrace its new reality.
I believe it should be a simple utility company that delivers IP datagrams to homes and offices – and doesn’t try to do anything more than that. Extremely simple, extremely lean, extremely low cost. Not trying to pretend what it is not – a media company, a content provider, a telco. With a few simple, linearly comparable products. Everything for modest, flat monthly fees.
The experience shows that such a company can’t be funded by a telco giant. Why? Because with the investment money will come the experts that will try to bend it to the world they know. They will add complexity which won’t bring expected revenues (why? I’ll leave it as an exercise for the reader’s intelligence). The result: a failed opportunity to do something really revolutionary.
So maybe some bright VC will seed an op along these lines some day. Or maybe the telcos will find their way to such a model. If they do it will lead through a road stained with blood of resources wasted by struggling with the inevitable.