Posted by Keith Willetts
Not sure I?ve seen any fireworks lighting up the sky, but it?s now a full 25 years since the first telecom deregulation. In that time just about every market in the world has gone down the path to competitive communications. So what, fundamentally, has happened in that time? Competition and regulatory pressures have transformed prices, but as the communications world discovered the laws of market elasticity, rising volumes and the phenomenal growth of mobile have meant that revenues have continued to rise. In reality, the business model for communications services hasn?t changed much in that time ? we?ve sharpened up marketing their old one.
But just as financial markets found out, all good things come to an end! According to IDate, 2008 saw the global communications market grow only by +4.2 percent to $1.37 trillion, but most of that growth was from still-expanding markets like India and China. In mature markets, any volume growth was more than cancelled out by price declines on mobile and broadband. Poor old fixed line revenues fell by 5 percent. Prices for everything are declining as we go not only into a recession but maybe a deflationary period as well ? I can?t imagine a scenario where communications prices will go up, indeed they are likely to follow a form of Moore?s Law.
In Europe, mobile penetration now exceeds 100 percent and with no more market left to trawl. So how do you continue to grow your business? The stock answer from CEOs is an exciting story of new mobile broadband; mobile TV; IPTV; unlimited music, online books - you name it they will claim it. But that question and similar answers have been asked for a long time now, and there is little evidence to show that the service providers can realistically generate new, innovative revenues.
Remember when location-based services would make us all rich ? well the market took so long defining standards for exposing the location data that the handset guys have just got around it by putting GPS chips in their phones. Same for MMS ? too hard, too slow and too user unfriendly to get a mass market going. The only truly new services, like iTunes, have come to market from ?over the top? players, not the communications companies.
So the question has to be asked ? can service providers realistically generate sufficient new revenue from the services they sell to their current customers to replace the decline in price on traditional services as markets saturate? And if the answer to that is maybe not, what are they going to do for an encore? Until recently, you could point to diversified services like outsourcing of corporate communications networks as a ray of sunshine ? that was until one major carrier started posting profit warnings and admitting over-stating profitability of that business.
I think service providers are quickly coming to a fork in the road when it comes to their core business model ? just who are their customers and their competitors; what services should they be selling and how are they going to monetize them?
Pioneering services like Amazon, Google, iTunes and Hulu have shown that entire markets can be shifted to a digital economy model at much less cost but where everyone can still make money ? apart from bricks and mortar stores of course. We are seeing a similar thing in publishing ? more and more publications are going online and eschewing expensive printing and shipping. Books and newspapers may well follow music and videos in going online through products like Amazon?s Kindle.
In fact the global recession will push almost every business on the planet to look at what cheaper and better online approaches they can exploit. Thanks to advances in communications ? fiber, 4G wireless and femtocells, (putting cell sites within the home) ? the market for digitally enabled services may well explode on a myriad of consumer devices from net-enabled TVs through online gas and electric meters, fridges and cars.
This mushrooming of devices and a true digital economy represents a huge array of opportunities for expanded communications services. The key question is does it also open up a whole new set of revenue streams for the service providers? Do they get commoditized into bit pipe players? Would that matter?