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Telcos: Speed Bumps and Launch Ramps
by Russell Bennett, UC Insights
I have recently written several papers where I presented a pessimistic outlook for traditional telecommunications networks:
In the many follow-up discussions on these topics I have had with friends, industry contacts and influential thinkers, I have turned up some news for the telcos: some good, some bad. Which do you want to hear first?
The SMS Revenue Speed Bump
A few weeks ago, UBS Investment Research published a telecoms industry analysis paper written by John Hodulik entitled “The dark side of smartphone penetration”. This paper provides evidence of a recent decline in SMS usage and revenues. Given the dependence of mobile operators on SMS as a major cash cow (11% of ARPU and 20-25% of EBITDA), the implications of such a trend continuing are far reaching. In fact I am quite surprised that, other than a blog entry in Forbes, this news appears to have been overlooked in the mainstream press and financial news.
Common sense indicates that SMS growth could not proceed beyond saturation, and I contend that the saturation point probably started with the offer of unlimited SMS usage plans, which emerged several years ago. While US based carriers have only just seen SMS usage peak in recent quarters; KPN, the Dutch PTT, has actually seen an 8% decline in SMS usage in its latest quarter results.
The UBS paper cites the rapid adoption of smartphones (currently 40% in the US, rising to 80% by 2015) and the alternative communications tools that these devices support, such as social networking apps, being more compelling than SMS. The combination of Twitter, Facebook, etc. and the flexibility and mobile utility of smart phones could turn what is currently an SMS speed bump into a long term decline. As we all know, social networking is shareable, searchable, multi-media oriented and interactive: by comparison, SMS is like something from the dark ages. We can only speculate on the possibilities of other forms of data-network-based communications options that will become available: Apple’s Facetime app is probably only the tip of the iceberg.
The only stake that the mobile operators have in social networking, and other forms of mobile communications and entertainment, is in data network revenues, which are already part of the revenue mix. If SMS revenues start to fall off a cliff, then the operators’ only option will be to increase prices on their data plans - however, this is unlikely to make up the difference. While the mobile operators currently enjoy some regulatory protection (i.e. you can’t opt for a data-only plan – you have to buy voice also) the indications are that the mobile operator gravy train is losing steam. This may have far reaching implications for the traditional telcos in general, and unified communications specifically.
In the papers referred to above, I highlighted the continued failure of the to offer compelling services, and illustrated that better substitutes are now being offered by ‘non-’. If this trend continues, then will, as I have predicted, be reduced from being global communications network operators to serving only as ISPs carrying the communications services of other firms who will make much larger margins.
A Launch Ramp for the 21st Century Network
So, given what I have said in the papers referred to above, combined with the news of the SMS downturn, what is next for the ? This very question has been posed by the SIP Forum in its SIPNOC initiative. In recent conversations with Rich Shockey, Chairman of the SIP Forum, we have broadly agreed that, absent a major strategic reset, the outlook for the is gloomy. However, Karl Erik Ståhl, CEO of Ingate Systems AB, a session border controller vendor, has a vision that might form the basis of a future strategy for the . I recently discussed this at length with Karl and he was kind enough to send me a slide deck that lays out his ideas in detail.
I am not going to steal Karl’s thunder, I will let you peruse a copy of his slide deck (“Time for to go Beyond POTS”) that I will host on my web-site. However, Karl’s proposition is that UC will struggle to achieve mainstream adoption on the Internet because the Internet:
What Karl is proposing is that operators should build, for want of a better description, a ‘UC VPN’ on their MPLS networks and that they should offer it as a managed service to add value to UC federation. Each operator would be required to connect their ‘UC VPN’ to that of others in a peering arrangement to ensure seamless inter-carrier communications. While it could be argued that this is just a variation of the “do nothing, decline to a bit pipe” option that I consider in several of my papers, it is actually a constructive and realistic option that is worth examining.
The great thing about this idea is that:
Some of the major gaps that would need to be filled include:
There is always a big gap between an idea and its implementation – and a market shift of this magnitude is full of pit-falls and potential excuses for failure. However, this is the best idea I have yet heard for a future business model for the (IMS was the worst, BTW, but I will leave that topic for another day). Per above, only the could implement this.
The last few months have brought interesting news in the UC and communications industry, including:
I would argue that the news that SMS usage has possibly peaked is equally as significant. There are other significant threats and opportunities that will materialize for in the next 5-10 years; we can only speculate what the communications landscape will look like in 2020. It is not too late for the to do some creative thinking along the lines of what Karl Erik is proposing. The alternative is that some , or at least some Telco businesses, are likely to end up like Pompeii: buried by the unstoppable force of Internet innovation. It is interesting to note that the people of Pompeii originally evacuated the city in plenty of time – the ones who died were the ones who went back to retrieve their possessions. So, on that grim note, the choice for is stark – move on quickly without looking back, or end up in a museum.
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