Moving up the Telecommunications Value Chain
Since the seventies telcos have been chasing the Holy Grail of "moving-up the value chain". The very first moves were made by US telcos, who became involved in directory publishing (Yellow Pages). In the mid-1970s, in the UK, BT started a videotex service (the predecessor of the Internet). Minitel from France Telecom is probably the best-known value-added service any telco has ever introduced, but it has been making a loss for most of its 15 years of existence.
During the 1980s the RBOCs in the USA introduced online services but were rebuked by the FCC. Telstra in Australia became involved, amongst other things, in an online Penthouse service, stockmarket data and software downloading. EDI, telemarketing and a range of other services were introduced by telcos throughout the 1980s and early 1990s. As far as I know none of them are still in operation. After two decades of failure many telcos are now trying again, with a new wave of 'value-added' activity driven by the Internet.
I am not aware of any 'value-added' service (except the directories) that has been a great mass market success story for the incumbent carriers. Over these 20 years I have always argued that the value-added service market (customer/marketing driven) is totally different from the telcos' core (engineering-driven) network business. You cannot reconcile the two. Only by setting up completely separate companies - totally independent of the slow-moving and bureaucratic core company - might the telcos possibly be in a position to compete with the literally thousands of existing and new e-services companies that operate, or soon will operate, in this market. Even in markets with full competition the incumbents still have a majority market share in their core voice business. By moving up the value chain they end up in markets where they are competing for a 1%-2% market share - imagine the culture shock alone associated with such a change. Totally different strategies, business structures, staffing, marketing etc would be required.
Incumbent telcos will have a less than equal chance of being successful in these markets because others may already have the customers, the marketing expertise, the background in that particular market, and so on.
Rebels and free spirits
It is rare for new ideas to be developed by incumbent organisations, authorities, etc. The moving forces behind nearly all new developments are 'rebels' or 'free spirits'.
Often these 'rebels' were rejected by the large telcos because they 'didn't fit into the team'. Freed from their shackles these 'free spirits' began to develop new companies and/or new products. They were not hampered by intellectual or cultural baggage; they had no preconceived notions about what was, and what was not, possible.
Unfortunately incumbent telcos are unable to use these 'free spirits' for the benefit of their own organisation, because by their very nature they cannot survive if they are in a controlled and restrictive environment.. I have not come across a single example of one of these entrepreneurs being harnessed within an organisation in such a way that their unique value can be maintained and exploited.
Telcos not owners but facilitators of e-services Of course, there is no disputing the fast-changing nature of the telecommunications market - away from POTS (plain old telephone service) to a hi-tech IT-based communication service, using far more sophisticated interactive broadband networks.
However, in my opinion, while the underlying structure is changing I don't think that there will be much change in the actual business nature of the applications, services and products that will be delivered over this new infrastructure. True, we will get pay-per-view, but the product - be it a mo vie, documentary, travel video, etc - will remain basically the same. E-commerce will arrive, but it will just be another version of financial transactions, services, procedures, etc, that will be added on to something we have been doing for many years - indeed for many centuries.
The new technologies and new networks will provide better marketing environments for the content providers of services and products (studios, publishers, banks, travel companies, entertainment, hospitality , health care, education, retail). Based on this new infrastructure, totally new products and services will be developed, but in essence they will still be educational, entertainment, financial, etc in nature.
Why am I stressing this? Because it is my belief that the content organisations who have been involved in these markets for many years - often even decades - will still be the primary sources of such content products and services and the applications infrastructure should be delivered by the telcos and IT companies. These companies would like to keep their own identity and their own brand names. They would not like to turn this into a jv with a telco and repackage it as a telco product. Content providers understand that reengineering their products and services into e-services is not a technical issue. It is a marketing issue, and they want to be in control.
IP=IT and Apps-on-tap
These developments are also described as 'apps-on-tap' or business applications on a pay-per-use basis. As indicated in our IP=IT philosophy (the Internet technology (IP) will turn telecom networks into gigantic computer (IT) networks) we see a very important role here for the IT industry. Companies such as EDS, IBM and HP are reported to be eager to join the carriers, on a shared revenue basis, to develop such apps platforms.
As in any major period of economic or social change, some of the traditional suppliers of these services will be unable to keep up with the pace and will falter and disappear - and others from outside the industry will, by using the new technologies, be able to seize the opportunity and wrest market share away from the traditional players.
My message here is: stick with what you do best. If you are good at what you are doing now, if you are able to keep a clear and open business focus and if you are totally customer-service-focussed you will be able not only to survive but to thrive in the new IT-driven environment, as it will provide you with new and better tools to improve your existing expertise.
So if you are an educator in this new market, please don't say that you are no longer an education company. Say that you are now a better-equipped hi-tech educator. The same applies to all other markets - finance, travel, health-care and so on.
Try to be a leader in your market. Keep your eye on the ball and let your customers guide you in the direction they would like you to go. Follow your customers and you will continue to be able to operate successful businesses.
So, back to the telcos. The same message is applicable - continue to do what you know best. True, voice-based calls will no longer be the money-spinner and the company will have to look for other communications products, and services and transactions certainly are a key element here. Therefore telcos should simply ensure that they are the best communications company for the delivery of all sorts of e-services. By trying to become a producer, publisher, travel-agent or finance company, they will find themselves in competition with companies who have been doing this for years. It would be an enormous task to grab market share away from these companies, who could actually be their best customers. Instead the carriers should look to providing the best possible service to allow others to provide e-commerce, ticketing, financial transactions etc. They should not attempt to become a publisher, stockbroker etc themselves as such a strategy would divert valuable time and effort away from their core business - communications infrastructure - and would be doomed to failure.
Paul Budde - Managing Director, Paul Budde Communication
Published by Totel www.totel.com.au
Date: Aug 30, 1999
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