Om Malik has some commentary on the rise of the cablecos as powers in the voice telephony space. Of course, they need briding back to the legacy PSTN world, hence the need for alliances with the likes of IDT.
The real cableco play here is to create an ever-increasing pool of on-net users (i.e. calls that you route between your own customers or those of cableco partners). The revenue associated with bridging to the incumbent telcos will slowly dry up, and these “partners” will find themselves left high and dry.
Unfortunately for the cablecos, this won’t make them rich. The cost of telephony will continue to fall, because most of the traditional copper and TDM equipment was laid and paid for long ago. Any cost savings associated with VoIP won’t give cablecos an edge - most of the cost issues now come from customer acquisition, billing and care. Prices will just drop further in response to increased competition. The profit pool will just get re-allocated onwards to the customers.
Long-term defensible value doesn’t usually come from arbitrage in the relatively static world of connectivity. Arbitrage only works when there is change happening faster than information about the change can be disseminated and reacted to in the marketplace. For the slow-moving, you need a proprietary technology (e.g. Windows), a proprietary name space (e.g. AIM) or even better some proprietary data (e.g. credit rating agencies). For the fast-moving, you can create temporary advantage through innovation in devices and services - think of iPods or Google.
“Fast-moving” is not something that should appear
in the same paragraph as “telco”.
So what should the cablecos be doing? It’s that same old story: you need to move on, create something that the PSTN can’t do. For example, notwithstanding the high-pass filters built into many landline handsets, you could squeeze out better sound quality with a VoIP adapter. If you’re Time Warner, partner with device makers to offer the AOL phone, compete with presence indicators of all your buddies. If you’re Microsoft and want to make your Comcast investment work, turn the Windows Media PC into a home media and telecom server - and be able to access your address book, notes, files, calendar, voicemail, etc. from anywhere on the Net.
Someone soon is going to puncture the public’s perception that telephony = PSTN, and at that point there’s going to be a lot of trouble. I don’t know about you, but I’m looking forward to the show.
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