The role of telcos in the digital economy has been hotly debated in recent months, but is commoditization a bad thing? Maybe not.
One thing which can be guaranteed is that the telcos are not going anywhere; connectivity, or lack thereof, will define the next generation. Our lives are being increasing dictated by access to social media, works emails or even cat videos, and this is a trend which will not stop. The telcos will not disappear.
And as far as the challengers for connectivity, they are finding out it is a much more difficult job than first perceived for two simple reasons: the workforce and the business model which is needed to make that workforce functional.
Let’s take Google Fiber as an example. This was a hugely disruptive idea, which threatened to destroy the status quo of connectivity in the US for a short period of time. The potential and desire was certainly there, however Google was not able to make the business work. Perhaps the reason is as simple as this is a software company, trying to make a crack at the physical world.
At WeDo Technologies’ Worldwide User Group conference this week, VP of Strategic Alliances Miguel Moreira pointed out to us that the number of field engineers at an operator could be as high as 30%. These are guys who have to get down and dirty in the real world. Google does not these people on the payroll, nor the business model to support such operations. It might not sound that complicated, but this is a business which is set up to design and manage software. The transition to the real world is complicated, and ultimately led to failure for Google Fiber.
This also presents another idea. Yes, software-defined is an area which will control the greater influences of society, but that does not mean the physical world disappears. Estimates of the number of IoT devices which will be deployed over the next couple of years vary widely, but the numbers are monumental. These devices create new software-defined opportunities and business models, but there will still be need to maintain the physical conditions of the network and the devices themselves.
The telcos should view their field engineer workforce as a creditable asset in the future, and a genuine value add to manage connectivity and the maintenance of devices in the field. It certainly is a different business model, but one which could be a useful earner considering the number of devices which we are actually talking about.
A final point to consider is whether the role of utility is a bad thing? Speaking at the same conference, Raul Mascarenhas, Executive Committee Advisor for WeDo Technologies, pointed out that utilities are also very profitable companies. In the data centre segment, one of the most profitable areas is power supply. The money being made there should certainly not be shirked at.
Elsewhere within the digital economy, AWS is one which doesn’t have an issue with utilization. Last year, we spoke to AWS’ Brendan Bouffler, who highlighted to us that considering the amount of business which there is to capitalize on, why should utilization be a bad thing? The number of customers and usecases for the cloud is seemingly endless, so why not be the stable fixture which collects consistent revenues?
Mascarenhas also highlighted that the role of utility would also enable the telcos to be a bit more risk savvy. Today, the telcos are recognised as risk obverse, traditional and cautious, but a consistent and considerable revenue channel feeding the shareholders as a utility, could open up the possibility of more adventurous investments elsewhere.
Think about the Google example again. The team made the decision to create a holding company, Alphabet, where the traditional search advertising business could operate as a cash cow, consistently pulling in profits, while a separate business unit could investigate other opportunities. It gives the creative engineers an opportunity to experiment with new ideas, and diversify into new markets without the pressure of the core business weighing on development.
This is an idea which could be replicated in the telco industry, should operators accept that the connectivity utility model isn’t a negative. Why not create an organizational structure which collects revenues as a utility, but then have an R&D department as a separate business unit, with an increased risk appetite, hungry to diversify into new areas. It’s the fail-fast business model which clearly works at Google, but many telcos have struggled to comprehend.
What is clear is that the telcos are not going anywhere. WeDo’s CMO Bernardo Lucas highlighted that there is too much trust and dependency on the sector for it to go anywhere, and this isn’t even taking into account the future connectivity demands of the connected era. But what is up for debate is the role of the telcos in the digital economy.
Maybe having the cash cow model of connectivity utility, which the telcos are very well positioned to capitalize on, can offer freedom. The majority fear the relegation to the role of utility, but it doesn’t have to be the case. It entirely depends on whether you are a glass half-full or half-empty type of person.