Saturday, July 10, 2010

Telecom caught at crossroads of change without a sustainable business model

IBM has issued a comprehensive outlook on the future of the telecommunications industry. To summarize, it describes an industry caught at the crossroads of change amid rapid growth of Internet protocol-based telecommunications without a sustainable business model. No surprise there since telecom as an industry -- like the cable industry -- is based on a closed, proprietary system put in place many decades ago to deliver voice or television programming over copper cable plant. It wasn't designed with the Internet in mind and thus doesn't have a cheap, easily executable upgrade path to put it in tech speak.

Moreover, neither telcos nor cable providers have a business model that will allow them to construct next generation, Internet protocol-based fiber to the premises infrastucture that can deliver multiple digital services to most all premises within their service areas. America's biggest telco, AT&T, admitted as much in a statement published in the New York Times yesterday directing customers not served by its wireline plant to its "broadband" satellite service.

Their corporate cultures naturally resist change. That's why they deploy battalions of lawyers, lobbyists, flacks and astroturf groups to defend the status quo and fight the future while preserving their conservative, risk averse business models based on the incremental billing schemes of the past -- even though these schemes are not a good fit with next generation telecom services.

Consequently, I believe we'll see a combination of the "Market Shakeout" and "Survivor Consolidation" scenarios in the IBM forecast come to pass. In fact, it could be aruged the "Market Shakeout" scenario in which "government, municipality and alternative providers extend ultra-fast broadband to gray areas, while private infrastructure investments are limited to densely populated areas" has been already playing out over the past several years.

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