Analogies sometimes are helpful when trying to understand the underlying dynamics of the “telecom” industry. In past centuries, telecom might reasonably have been likened to roads, pipelines, electrical or water utilities. They were considered “natural monopolies” not amenable to competition, with state ownership quite common.
In the competitive era, beginning nascently about 1985, new analogies were more apt. Some have likened competitive telecom to the airline industry . Both were highly regulated in the past, were then deregulated, are capital intensive, subject to scale economics, with global and local business models.
Both industries now rely on multiple revenue streams, where in the past revenue was generated only from customers buying tickets or making phone calls. Airlines now generate revenue by selling miles to affinity and reward program providers, while telcos are moving into advertising– where business partners, not subscribers–are the revenue model.
Consultant Martin Geddes says both industries actually deal in abstractions, or should. The “value” is destination arrival or application performance–an outcome–rather than the underlying resource (capacity, seats).
In other words, the performance (specificity of arrival time) is the outcome and value. High-value, time-constrained arrival is one class of service, while best-effort arrival is another class of service. It might cost one amount to be guaranteed arrival on a specific day, at a specific time; it might cost quite a lot less to “get there” with some possible delay (the next day, eight hours later, and so forth).
There are some barriers to full competition, including ownership of local access facilities in one case and landing slots in the other. Both industries have been reshaped by low-cost competition. But the nature of the competition has changed. Back around the turn of the century we might have thought the competition would come from new service providers.
As it turns out, the new competition comes from “over the top” app providers. To be sure, facilities-based competitors do exist, mostly in the mobile segment of the business. But the primary assault as been by application providers whose products simply offer product substitutes that work on any internet-connected device.
Think of the analogy to business partner (advertising) revenue: app providers often make their money from advertising, not subscriptions and direct payments by users (customers).
But the next set of analogies might be to privately-owned autos. Fleets of self-driving vehicles might eventually obviate the need for private ownership of automobiles. Transportation still is provided (by fleets of self-driving vehicles available on demand), but not by one means (car ownership).
Some people might object: “there still will remain a need for access.” That is correct. Networks still will be needed. What is not clear is that “ownership of my own network” is required. Netflix is a major, tier-one provider of subscription TV. But it owns not retail access networks. Neither does Skype, Google, Facebook or Amazon or Alibaba.
In that new analogy, access networks are like fleets of self-driving cars. They are available to provide transportation as needed (over the top apps). But the present “owned automobile industry” (telcos and other service providers) will suffer, as people will buy far fewer automobiles.
That is the inevitable consequence of adopting the internet and IP networks are the next generation network. Use of apps is decoupled from ownership of networks. So long as any user has internet access, internet apps work.
To use the auto analogy: people (app providers) will not have to “own” cars to satisfy many transportation needs. Vehicles (network access) still will be necessary. “Owning” the networks (access facilities) will not be required.
As it turns out, the airline analogy was the least of the telecom industry’s problems. The self-driving auto–and its ability to support fleets of on-demand accessed transportation–is the real problem.