telco | Paul Wallbank - Communications Professional

Telcos and the battle to diversify

Australian telco Telstra’s attempts to diversity are part of the broader industry’s struggle to find new revenue streams.

How Australia’s incumbent telco, Telstra, deals with the industry’s commoditisation is the topic of my interview in Diginomica with the company’s Hong Kong based director of Global Platforms, Jim Fagan.

The need to diversify is pressing upon Telstra with the company’s income down 3.6% in its last financial report with mobile sales, by far their biggest revenue earner, down eight percent.

Across the developed world, telcos are seeing their markets slowing with global smartphones sales largely static, formerly big profit generators like SMS declining and broadband data rates collapsing.

In the US both formerly untouchable telcos are struggling which has seen them attempting to diversify with AT&T buying Time-Warner for $85 billion and Verizon buying Yahoo! despite its problems that saw a $250 million discount after the service’s hacking scandal.

With the pressures on the telco industry, it’s not surprising they are looking at alternative income streams and Telstra’s strategy seems to play more to their traditional strengths than a media play, which Telstra has tried previously and failed.

It could be though that Telstra, like all telcos, could be destined to become a utility service. While that might disappoint executives and shareholders who dream of glamour, excitement and high profits, that might not be a bad thing.

Winning the gig

The US city of Chattanooga is showing how public broadband networks can be rolled out, and the benefits of doing it properly

A year back this blog asked if Chattanooga’s experience shows how city infrastructure can drive private sector investment.

“The Gig”, as Chattanooga’s civic leaders have branded the city’s broadband rollout, came about because the city decided to treat internet services as a utility like water and roads. Vice Motherboard reports how this has reaped dividends for the town.

As Vice’s Jason Koebler describes, Chattanooga’s unemployment rate has halved since the depth of the Great Recession and in 2014 was listed as having the third highest wage growth among the United States’ mid-sized cities.

There are downsides though, Koebler warns, and one point is that having good broadband on its own isn’t a sure fire bet.

“Like the presence of well-paved roads, good internet access doesn’t guarantee that a city will be successful,” he writes. “But the lack of it guarantees that a community will get left behind as the economy increasingly demands that companies compete not just with their neighbors next door, but with the entire world.”

The advantage Chattanooga had though was its electricity company was owned by the city which meant a major part of the existing infrastructure was already in public hands and made it relatively easier and cheaper to roll out the network.

What Chattanooga does show is a well planned and structured fibre roll out can be done, it is easy or cheap and takes sensible planning. The latter is something other broadband projects can learn from.

Huawei’s attempt to shape the cloud

For the last two days Chinese network equipment vendor Huawei has been holding its first Huawei connect conference in Shanghai.

There’s alway plenty to announce at these conferences and Huawei had consultancy partnerships with both Accenture and Infosys, their IoT strategy and their big push into cloud computing.

Ken Hu, the company’s current CEO, even had a new word – cloudification – to describe how business processes are going onto the cloud. Although during the segment on their relationship with SAP, the Huawei executives were at pains to emphasise that in their view most enterprises are a long way from going to a public cloud and will be hosting their own services for some time yet.

Despite the clumsy buzzwords, Huawei does have an interesting selling point in the market with its tie up with telcos giving it both a strong sales channel and a unique selling point. How well they execute with telecommunications companies that are notoriously poor at selling these services remains to be seen.

Huawei’s internet of things services are a similar proposition. Being close to the carriers means the company is well positioned to compete in the market, particularly in M2M applications, but again that closeness to telcos could be a hindrance.

The big message from Huawei Connect is that Chinese companies are genuine competitors to European and North American companies like Ericsson and Cisco, something illustrated on Tuesday when Tencent previewed their new head office in Shenzhen that will act as a live R&D lab for their IoT offerings.

Overall Huawei Connect was a good example of the Chinese government’s efforts to shift the nation’s economy up the value chain.

Rolling out innovation on 5G mobile networks

5G networks could be the catalyst for a new breed of online innovation says John Smee, the Senior Director of Engineering at Qualcomm Research

“We’re in the flip phone era of 5G networks, people don’t realise today’s 4G mobile standards were written for the era of the flip phone,” says John Smee, the Senior Director of Engineering at Qualcomm Research

John was speaking to me at chipset manufacturer Qualcomm’s San Diego head office to discuss the next generation of mobile phone services.

Putting together communications standards isn’t a simple thing, as John says “what we’re discussing now is what today’s five year olds will be using when they turn fifteen.”

John sees the new standard as giving the next generation of internet giants their market opening, pointing out companies such as Facebook and Uber benefitted from the rollout of 4G networks and some of today’s startups will get a similar boost from 5G services. “A few clicks and you’ve ordered a ride. That wouldn’t have been possible without 3G connectivity, high powered smartphones and networks that are scalable.”

“What are going to be some interesting new startups that become huge multibillion dollar industries from 2030,” he asks. “By definition we don’t understand the future.”

For telco executives being a ‘dumb pipe’ is one of their nightmares and John believes they can avoid that fate in a 5G world by concentrating on their advantages with licensed spectrum. “If they are looking a high reliability and low latency services then the quality of the connectivity they can offer becomes essential,” he says.

While the standards groups continue to work on the 5G standards, the technologies continue to evolve. John Smee’s message is that these new products are going to offer opportunities for new companies.

The trick is to figure out which of today’s startup companies will be the Uber or Facebook of 2025.

Managing a shrinking company

Ericsson are the latest company to face the reality of needed to shrink as their industry is being disrupted.

It isn’t just software companies and telcos that are facing a changing, less profitable, world. As margins decline for their enterprise customers, equipment vendors are facing the squeeze.

A good example of this is Sweden’s Ericsson which last week announced declining sales as China’s Huawei displaces them in market and their enterprise and telco customers tighten budgets in the face of declining margins.

For Ericcson this means finding new opportunities but for them, like Cisco and Microsoft, most of the promising markets offer nowhere near the profits they have been used to in their traditional businesses.

Managers in these industries face a difficult dilemma in explaining to shareholders their company needs to be smaller and less profitable than previously which is something few want to hear.

Not to admit that painful reality risks killing the company as margins continue to shrinks, sales shrivel and desperate managers engage in increasingly desperate stunts in the hope on stumbling on another river of gold.

It’s an ugly place to be for staff at these companies but it shows that fat profits can never be considered to be given in any industry.

Africa’s mobile payments shift

Somalia’s EVCPlus shows how African economies are adapting to the mobile economy

One of the greatest profitable accidents of the last twenty years was SMS messaging that delivered telecoms companies huge revenues for a service that cost them almost nothing.

In Somalia, we may be seeing phone companies leading the way in cashless transactions as the economy moves towards mobile payments on the back of service intended by one of the nation’s leading cellphone providers for a completely different purpose.

The Hormuud Telecommunication Company set up EVCPlus to deal with account payments but in an unstable and risky economy the service has proved an efficient way to deal with daily transactions

“It’s not safe to carry cash money here,” said Dhublawe Ibrahim Aden, 25, a hawker who sells shoes and clothes. “If someone has to buy my shoes and bungles [necklaces] then he has to pay me through my cellphone. I don’t accept cash money from clients.”

Like Kenya’s M-PESA, EVCPlus is showing how slower and more basic connections aren’t a barrier to African economies leading the world in some online services. Sometimes having access to basic services isn’t an impediment.

Telcos enter the utility age

As the electronics and communications industries shift, telcos are being left behind

That telecommunications companies are taking the back seat at the global Mobile World Congress as virtual reality hogs the limelight, it may be telcos are facing the fate their managers fear most – becoming a mere utility.

Following the hype around virtual reality at the Consumer Electronics Show in Las Vegas last months, it’s not surprising this year’s Mobile World Congress in Barcelona has continued the theme.

As Samsung and Huawei dominated the first day of the Barcelona event; Google, Facebook and a range of startups are also fighting to dominate a market estimated being worth $150 billion by the end of the decade.

What’s notable though are how the telecommunications companies are missing in this field, having lost the battle for payments – its notable how little telco money is now being invested in fintech and blockchain companies while the banking industry pours money into the sectors.

For the telcos, the industry that should be dominating Mobile World Congress, there seems to be very little promise in these technologies to their maturing revenue streams from their networks.

While telcos are focusing on new handsets, data centres, intelligent infrastructure and media plays it seems they are increasingly missing key shifts in the marketplaces.

Maybe what this year’s Mobile World Congress really tells us is the telcos are on their way to being utilities. Their executives may need to swallow some pride.

Telcos shifting up the stack

For the world’s telecommunications companies it’s a matter of diversify or shrink.

One of the Twentieth Century’s great rivers of gold was the telecommunications industry. As the world became connected, first by telegraph, then telephone and finally mobile networks, owning a telco licence became a path to riches.

Late in the century, the mobile phone was a spectacularly profitable device for telcos in the 1990s as consumers flocked to buy them and pay dearly for services, particularly SMS which was practically free to provide.

Just as the century was coming to a close things changed dramatically as the Internet became accessible to the general public and while data was still profitable, telco revenues started to fall dramatically. Then, early in the new century, the arrival of the smartphone disrupted the entire industry.

Becoming a dumb pipe

Twenty years later and the arrival of smartphones using data services has changed the economics of cellular networks, leaving the incumbents worried they are going to merely become ‘dumb pipes’ offering just a low margin utility.

Around the world incumbent telcos and mobile network operators have responded by moving up the value chain into managed services and cloud computing and one particularly interesting company in this respect is India’s Reliance Telecom.

Reliance has responded to the changes in its market, something made more problematic by India’s arcane and complex cellular licensing system, by strategically selling off various parts of its infrastructure and focusing on where it sees opportunity.

At a lunch in Sydney yesterday CEO Bill Barney of Reliance’s global network division was showcasing their cloud services for Australian customers and showed how the quest for profits is moving telcos into areas like data centres and managed services.

Emerging markets corridor

Barney argues that Reliance’s network, which spans South Asia, the Middle East and into Eastern Europe, gives the company a strong position in the “emerging markets corridor”. He also boasts the product the company offers allows easier development of smart services.

In this respect, the Reliance Global Cloud Exchange differs from similar plays like Telstra’s PacNet network across East Asia – which Barney previously headed – in that it offers services higher ‘up the stack’ making it easier for companies to deploy smart applications, something Barney sees as being particularly attractive to the media and financial industries.

While Reliance’s claims are yet to be tested in the market, the company’s shift to higher level services illustrates a struggle facing all telecommunications operators. To do this, Reliance and Telstra look to global networks and data services, Singapore’s Singtel tries its hand at media content in a similar way to Britain’s BT and Vodafone makes a strong Internet of Things play.

For each of these companies, diversifying into other fields makes sense however each strategy brings its own risks – in Reliance and Telstra’s cases this means competing with cloud services vendors like Amazon and Microsoft – that telcos haven’t been exposed to in their core markets.

Those core markets though are being disrupted and will never be as profitable as they were twenty years ago. For the world’s telecommunications companies it’s a matter of diversify or shrink.

Revitalising the telco smartcity party

Can AT&T spark life back into the telecommunication industry’s smartcity party?

AT&T is expected to announce a new smartcity strategy at next week’s Consumer Electronics Show in Las Vegas.

Three years ago we interviewed Barcelona’s deputy mayor Antoni Vives about the possibilities of the smart city. What was notable about his views was the emphasis on the social and ecological benefits of these technologies.

“Barcelona has to become a city of culture, creativity, knowledge but mainly fairness and well being,” Vives said. “I would love to see my city as a place where people live near where they work, I would love to see the city self sufficient in energy and it should be zero emission city.”

Vives’ point is essential in the smart cities discussion. While the gadgets and data analytics aspects are important, it’s the benefits to government and the city’s inhabitants that are essential.

Which is a problem for telecommunication providers and tech vendors looking to find new, high margin, markets as most of the products they are touting are the classic ‘solution looking for a problem’ that has been a future of the computer industry for decades.

Telcos are in a more difficult position as many of the smart cities are deploying their own wireless networks which compete with their own often expensive solutions, particularly M2M services that rely on devices having costly SIM cards fitted.

It’s hard not to think AT&T’s move is one of a desperate late comer to a party that’s already not living up to expectations, it will be interesting to see if their CES announcement sparks some life back into the smartcity discussion.

Using city muscle to drive private investment

Can strategic public projects trigger private sector investment

Chattanooga in the US mid West introduced city broadband in 2008 in the face of legal challenges from the existing cable operators.

The operators lost in the courts and were forced to compete with the local, city owned power company’s network.

Now Wired reports Chattanooga is upping the ante by increasing the available throughput of their network to 10Gb.

While that’s good news for those businesses and households in Chattanooga that need those speeds, there’s a much more important effect that Wired points out.

Municipal broadband providers are raising expectations nationwide for what good Internet service means, forcing commercial providers to improve their infrastructure. And by increasing the amount of bandwidth available, they could be setting the stage for the creation of new, more bandwidth-hungry applications. This is how better service goes from a “nice-to-have” to a “you’d-better-have” for the country’s recalcitrant cable companies.

A few municipal projects could be the trigger to getting better services across the country. This is a model that could work in many other fields as well.

Experian, T-Mobile and third party security risk

T-Mobile’s security woes at the hands of Experian show trust cannot be outsourced

Another day, another corporate security breach (or six). This time telco T-Mobile has revealed up to 15 million customers’ data has been compromised.

Notable in this story is that T-Mobile are firmly putting the blame on credit monitoring company Experian.

For both companies this is extremely embarrassing with T-Mobile stating, “our vendors are contractually obligated to abide by stringent privacy and security practices, and we are extremely disappointed that hackers could access the Experian network.”

T-Mobile, like most telcos, sees a major opportunity in being a trusted provider of security services and this setback hurts them in a key market.

Experian on the other hand have shown their slack attitude to user data previously, having been caught selling consumer details to identity thieves.

That a company in such a privileged position as Experian can be constantly caught this way will almost certainly increase the push to see penalties for corporate data breaches start to get real teeth and the United States’ cavalier attitude to public privacy and online security will take another dent.

For T-Mobile and most other companies, the lesson is start and clear. Trust starts with your own contractors and business partners, it cannot be outsourced.