Mobile phone carrier Vodafone yesterday announced its purchase of Cable and Wireless, the company that rolled out the telegraph and phone networks that connected Britain’s empire.
Vodafone’s purchase is one of the final phases of the telco industry’s long term restructure where customers – both home and business users – have switched from land lines to mobile devices.
It’s long been acknowledged the profit in this market lies in devices and data usage which is why Cable and Wireless steadily declined over the past quarter century.
While there’s good money to be made in running undersea cables, which is what C & W did, the big profit is in delivering the data over the “last mile” to the customer.
For most customers, that last mile is the radius around a cellphone base station.
In Australia, this is best illustrated by Telstra’s undisguised glee at being able to offload their legacy copper network and backbone services to the government owned National Broadband Network allowing the former land line monopoly to focus on the mobile, data customer.
That data aspect is important too, one of the big changes in telecommunications over the last 25 years has been the rise of data.
A quarter century ago, voice communications were the main traffic of these networks. For companies like Cable and Wireless, data was a profitable sideline with services like Telex and ISDN being lucrative business niches.
Those rivers of gold distracted incumbent telcos in the early years of the public Internet as they tried to protect those expensive data plans and discouraged customers from using the net.
Over time, a new breed of Internet Service Providers rose who could supply those data services customers wanted.
Ironically, the same thing has happened with mobile phone manufacturers and the rise of the smartphone. Unlike the incumbent telcos, they haven’t adapted.
The incumbents phone manufacturers like Nokia and Motorola missed the rise of data communications and the mobile web as the iPhone and Android devices delivered the portable utility that “dumb phones” couldn’t deliver.
For Nokia, that miss appears fatal with the company rapidly running out of cash as their smartphone devices fail in the marketplace and margins collapse in the sectors they still dominate.
Research In Motion – the manufacturers of the Blackberry phone – are in the same trap. While their devices were data orientated they were more akin to corporate “feature phones” where they did one or two things well but couldn’t deliver the full features mobile phone users increasingly wanted.
The rise of the iPhone threatened Blackberry’s market and the arrival of the iPad with applications like Evernote killed most of the product’s demand.
Blackberry and Nokia’s decline while companies like Telstra and Vodafone survive – not to mention massive profits of companies like Mexico’s Telefonica – illustrate the value of government licenses to telcos and the breathing space it gives the management of these licensees.
We shouldn’t underestimate though the risks to all these businesses if they don’t adapt.
