Posts

Underestimating Demand is as Bad as Excessive Optimism

The launch of AT&T’s DirecTV Now streaming service reminds me of its launch of the Apple iPhone. As you will recall, the iPhone launch appeared to have caught AT&T somewhat by surprise, in terms of the added usage of its data network.
Roughly the same thing seems to have happened with the DirecTV Now launch. In both cases, customers complained about quality issues that appear related to capacity to support the new services.
You can guess what comes next. AT&T took steps to fix the capacity problems related to iPhone customer behavior patterns, and likely has spent the last few months figuring out how to better support scaling of its DirecTV Now service as well.
You might well expect a renewed growth spurt, as a result. It’s just a reminder of how networks are dimensioned: you have to make assumptions about consumer behavior. Overprovision and you waste capital. Underprovision and consumers will have a troubled experience. It is hard to get it right, for new services that pr…

AT&T DirecTV Acquisition Seems to be Working

Image
AT&T’s acquisition of DirecTV was not universally acclaimed when it happened. Some observers said AT&T needed to spend the money on better internet access. Others pointed out that the linear video business already was in decline.

Supporters argued that the move made AT&T a nationwide quadruple play supplier for the very first time. Others pointed out that the free cash flow almost singlehandedly would fund AT&T’s dividend for some time. Some added that the additional scale would improve economics for the firm’s video business now, while creating a much-stronger platform for OTT video to come.
So the new way to reassess that particular choice is whether you think AT&T or Verizon is in a better position, today, strategically.
If you believe all access providers will have to replace half of current revenues within 10 years, the only question is how to do so. In principle, you can make horizontal or vertical acquisitions, invest in new lines of business or grow organic…

Go Horizontal or Vertical in Acquisition Strategy?

Access services are a mature market in developed countries, and eventually will become mature even in developing markets, even as new revenue sources are created to replace declining legacy services. That has business consequences.
Most large tier-one service providers (cable, telco, satellite) eventually grow more by acquisition than organic growth. That is not the pattern for smaller firms, but you get the point. In any “mature” market, where accounts are essentially saturated, any provider tends to get account growth mainly by taking an account away from another existing provider.
So supplier consolidation is a long-term process in the global telecom industry. The only question is how fast, and how intense, that process is at any moment in time.
But what sorts of acquisitions make sense? The easy answer has been to make “horizontal” acquisitions to gain scale in the existing business. In other words, acquire more access assets.
That is the thinking when analysts float trial balloon…

"Move Up the Stack or Not?

Image
Generally speaking, future telecom strategies come in two basic flavors. The first is the “be the low cost access provider” strategy. Among the key issues: can an entity gain enough scale to offset low average revenue per account? Can the entity cut costs fast enough, and continually, and still survive?

The other is the “move up the stack” strategy. Both are risky.
“Carriers have at various times tried to market their own devices, build portals for apps and entertainment, and provide outsourced IT services,” Strategy& notes. “The results, however, have been mostly disappointing.”
There’s a sort of simple way to plot strategic choices. Only a few of the larger entities will have the ability to really transform their business models and “escape” the “access provider” model.
For most service providers, some version of the “low cost provider” strategy will have to do, as there is not going to be enough capital or other resources to do anything else.
To be sure, there will be lots of fanc…

Amazon "Chime" Illustrates "Value" Problem

Image
“Everybody” knows that the telecom industry has a “perception of value” problem. A new conferencing service launched by Amazon illustrates the problem.



Before your head blows off, this is a conferencing service normally purchased by businesses, offered by Amazon Web Services.

Amazon Chime will be sold direct, and by partners Level 3 Communications and Vonage.

Level 3 will offer Amazon Chime as part of that firm’s “Unified Communications and Collaboration Services” portfolio.

Vonage now includes Amazon Chime in its business communications plans at no additional cost.

Three observations, here. AWS is the app creator and owner, not a “traditional” communications service provider or a unified communications specialist or enterprise voice provider. That is just one more example of over the top suppliers becoming substitutes for traditional telecom suppliers.

Level 3 is a distributor of Chime, not its creator and owner. That illustrates the growing role of access providers as conduits for thi…

"Layer Zero" Illustrates Broader "Value" Problem for Telcos

Image
The industry audience listening to a talk by Marcus Weldon, Bell Labs president, about the drivers of future value in the next era of telecommunications drew immediate laughter when Weldon talked about where telecom sits in the end user’s estimation of value.

Go to 08:30 minutes into the video if you just want to hear the discussion of where telecom sits in the perception of value. Or watch starting at about four minutes in if you want to hear the Bell Labs vision of how "value" will be created in the next era. 


The point is that we work in an industry that once was considered layer one of a seven-layer model with “applications” at the top, but now is said by a growing number of observers to be at layer zero. 

Sure, the open systems interconnect model was created to illustrate the way modern programming should be done, but the idea has come to illustrate the "dumb pipe" problem as well.

To the extent that value is found "higher in the stack" at layer seven, t…

Telecom's Layer Zero Problem

Image
Telecom, if we are honest, is a business in trouble because its value to customers and users is no longer something we can take for granted. That is what the phrase “dumb pipe” is all about, if a bit of a misnomer.

Voice, text messaging, video content and other services sold by access providers often have a layer seven function as well as encompassing the lower functions, because those services literally are applications sold to the customer, not access to a cloud that sells or provides the services to a customer.
“Best effort” internet access turns out to be the first real “dumb pipe” product generally and widely sold to customers.
But, in an era where computing-based products provide the value that drives consumers to buy internet access, the access itself can be viewed as a low-value function.
“Layer zero” might only be a reasonable description of “internet access,” but the apt concern is that, over time, more of the former applications value supplied by telcos simply is removed to …