My elder daughter (age: not quite 3) has become rather inquisitive of late. Every story you read her is punctuated by “what because?” — her long-winded equivalent of “why?” — as well as her personal commentary. Tonight’s episode was Beauty & The Beast. Apparently Beauty’s mother is absent from the tale due to her having gone on a shopping trip. (I’m not making this up.) So now you know. I also had a bit of fun recently in pointing at her little sister recently and asking where babies come from. Delighted that she knew the answer, she could barely contain herself. “From a taxi!”. Quite right, too.
Anyhow, we have our fair share of worldview framing and conceptual problems in telecom as well.
Telco misconception #1: The Internet and IP is primarily about disintermediation.
That’s a distinctly ego-centric view of the world. Whilst you personally might experience pain from disintermedation of vertically integrated network products, that didn’t figure in the slighest in the design principles or requirements that drove the creation of Internet Protocol. Furthermore, the end-to-end principle is really an appeal to preserve option value in a world of rapid technology change and innovation. By resisiting this force, you’re either betting you can supress rival distribution channels for competing innovation, or you can yourself be a lead innovator. Personally, I don’t buy either view.
Telco misconception #2: PSTN voice is all the public want.
Time to go survey a bunch of Skype users. Sure, they adopted it because of free minutes. But wait a minute. Don’t many of these people still use Skype when they could use equally free minutes from their bounteous bucket of cellular minutes? Or from one of the unlimited VoIP or newer all-inclusive carrier plans?
Despite the still very cramped functionality of handsets for Skype, and the ties to the legacy PC that needs to be always-on, something big is quietly unfolding here. People will be given an even greater taste for advanced functionality as workplaces roll out the newer Microsoft and competing tools. If I were an investor in a telco, I’d be demanding to see a voice and messaging product roadmap. NOW!
Telco misconception #3: The Internet or “stupid networks” are economically unsustainable.
Telecom is just another boring networked utility. Yes, you read it here first, folks. Other networked industries manage to stagger on. The electric company doesn’t know what I plug into the sockets. The water company is only allowed the most crude of discrimination patterns (e.g. hosepipe bans during droughts). The airline can use proxies for the purpose of my journey, but never can inquire directly as to the purpose of my trip.
Yes, information goods don’t behave the same way as atoms. But the difference isn’t as big as you’d like it to be.
Telco misconception #4: We can block and trap all the traffic.
Fine-grained price discrimination may be a telco dream, but bits are ultimately impossible to trap that way. All you’re doing is engaging in an arms race with your customers as to how well they can cloak their traffic and avoid your toll gates. I’m sorry to have to break the news to you, but Claude Shannon got their first: bits are just bits, no matter how you convey or represent them. In fact, by imposing the “arms race” cost on your customers, and effectivly decreasing the capacity of your pipe (because of the overhead of cloaking and encryption), you’re just making the more open competition more attractive. In the beginning you might see some success, but I’ve got a long-term short position on snake oil.
Telco misconception #5: If demand for telco application services recedes, people will just spend the money on connectivity instead as its price rises with increased demand.
No, you’re just going to have to return a whole bunch of profit to users as consumer surplus. Revenues are indeed likely to surge, but as long as you insist on carrying the legacy billing, network and care costs of bit-by-bit price discrimination, your margins are likely to look horrible. Small drop in revenue = large drop in margin = hideous stock price oulook. Connectivity isn’t an aspirational good, let alone a “flaunt it” one. Your loss is someone else’s multiplier effect.
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