Is the Tel-Com industry going the way of the dinosaur? If worldwide trends in 2008 are any indication, that very well could be the case.
Speaking of case, the tech industry research and analytical firm Heavy Reading is on it. In a study released this week entitled “Reinventing the Telco: A Heavy Reading Progress Report”, the firm concludes that while telecom companies continue to make investments in research and technologies, it’s not really clear how those investments are going to pay off.
Writes Graham Finnie, chief analyst at HR: “Big telcos are continuing to invest huge sums in their networks: In 2007, five fairly representative telcos – Verizon Communications Inc. (NYSE: VZ - message board), France Telecom SA (NYSE: FTE - message board), KT Corp. , NTT Group (NYSE: NTT - message board), and TeliaSonera AB (Nasdaq: TLSN - message board) – spent a whopping $50 billion among them, mostly on the construction of next-generation access and core networks. Yet ask them what new service revenues that investment will support, and things start to get pretty vague. If things stay vague, the long-term survival of big telcos is in doubt.”
Clearly, the telecom industry is in retreat. Land lines and broadband markets have just about hit critical mass in the U.S. and Europe, even as telecoms continue to make big investments in such technologies. Finnie points to France Telecom, which has seen its base of retail consumer lines in the French market fall from 23.2 million to 17.7 million.
HR says the French are increasingly leaning toward alternative telecom options, like voice-over-internet (VOIP). Consequently, France Telecom has seen its wire line revenues fall from $2.7 billion to $2.2 billion.
Perhaps even more frightening are trends in the wireless market, again in Europe. The Heavy Reading report says that Vodafone Group saw its wireless revenues drop in the last year, although analysts speculate that market conditions could be in just a brief dip and that voice revenues should pick up again as the global economy strengthens in 2009.
All told, the HR report suggests that telephony’s days are marked. A staggering 91% of respondents (130 total) say that telephony won’t survive as a standalone service. Most respondents say the next great frontier could be the bundling of internet, phone and IPTV services, much like Verizon and Comcast have done here in the U.S. in the past year. About half of the HR survey respondents say that “triple-threat” packages represent the industry’s best shot at solid profits over the next five years.
But Finnie has doubts whether that will happen. “Can triple play really get telcos out of the revenue hole?” he writes. “In broadband access, (Triple play) is down in many territories as a result of price-led competition and lower-cost inputs, while new customer acquisition is slowing as many networks saturate. Competition between flat-rate broadband wireless and wireline packages is also beginning to bite. It would be foolhardy to expect vanilla Internet access not to follow the same revenue decline as telephony as it matures. In the most advanced markets, that decline is already underway.”
Television could be one market that has growth prospects for telecoms, but, as Finnie points out, consumers historically spend a lot more money on communications devices and packages than they do for entertainment. A better way out? Partnering with third-party specialists. “The single most encouraging data point from our survey came in answer to a question that asked telcos to name the factors that would be most important to their future success,” says Finnie. “Top of the list for telcos – higher than a rapid transition to all-IP NGNs, or fixed/mobile convergence, or launch of new services and content – was partnering with third-party service providers. That is both surprising and heartening, as it suggests that the average telco is at last getting the central message that must define their future: You cannot act alone.”
Trouble is, the telecom industry moves at a glacial pace. If it doesn't pick up speed, it may be too late.