A couple of weeks ago I was invited to give a talk at the University of Toronto as part of their MET Executive Development Program. The room was stuffed full of telecom execs on a two day program run by the engineering faculty at the University. My themes, as you might expect, were around innovation, the need to engage third party developers, and the uniquely Canadian problem of high consumer costs.
The latest industry research seems to show that carriers are finally taking notice of this message. Today JAJAH will release their Q2 Telecommunications Industry Issues Index, a piece of primary research they conducted earlier this year consisting of a series of interviews with CTIA delegates and C-level telecom executives in Europe and North America (join us for a live interview with JAJAH CEO Trevor Healy on the SquawkBox at 11 AM EDT today — Facebook members click here; if don’t have a Facebook account click here). The primary findings of this piece of research by JAJAH are:
- Landline churn: The biggest fear amongst fixed line telecommunications companies is the loss of landline connections. Four out of five companies put landline replacement revenue at the top of their agenda.
- Value Added Services the savior? The majority of carriers rank the addition of Value Added Services to their portfolio as a higher priority than their network. Two-thirds of chief-level executives state Value Added Services are the single most important factor for increasing customer loyalty and revenue.
- Talkifying the Web: It is unclear how to deal with the perceived threat from “new-style” competitors, with two-thirds more concerned about Google than new triple-play competitors.
- IP telephony strategy gap: Many companies identify significant room for advancement in IP telephony strategy. Two-thirds stated IP telephony represented the future of telecommunications and are looking to carrier-friendly companies like JAJAH to partner with to quickly advance its IP offering and IP backbone.
- The future is international: International markets hold enormous potential; Ninety percent expect significant revenue growth abroad, rather than in domestic markets in the next five years.
- Infrastructure investment black hole: With a lack of funding for infrastructure investment, more than 60 percent of the executives questioned believe they will outsource a greater proportion of infrastructure development by 2009.
- Triple play boom: Service expansion by telcos will lead to an increase in triple play offerings in the U.S. and Europe in the next twelve months. More than one-third of single and dual play companies plan to launch a triple play offering within the next 24 months. Of those companies looking to expand into IPTV, more than half will do so via acquisition.
Not inconsistent with JAJAH’s research, at the University of Toronto event IBM Canada’s Bruce Lindsay presented a series of IBM findings which showed that carriers’ attention is shifting dramatically from revenue growth and expense reduction to business model transformation.
- 46% stated an intention to add media and entertainment offerings to their mix.
- 53% stated an intention to enable third party access to telecom capabilities such as SMS, voice and location services.
- 72% said they would collaborate more extensively with external partners.
- and a full 1/3 of the surveyed providers said that they are looking to vary their business model to include advertising.
So what does it all mean?
Well, carriers it would seem are finally feeling the pain of revenue losses. The only surprising part about it is that it has taken them this long to reach the conclusion that voice minutes are price elastic. As this (very old) chart of FCC average revenue per minute plotted against minutes used per month shows, it’s been obvious for some time. If you drop the price of calling, people will call more.
And, touching on another very old theme from this blog, carriers are finally understanding that they cannot hope to do it all themselves. My friend Chris Wood first constructed this chart of Chris Anderson’s Long Tail applied to telecom three years ago. Today’s carriers are duking it out amongst themselves on the left side of the chart, but the potential for rich new telecom applications in the blue area — applications which marry dating, classifieds, travel and other web based services to telephone — is immense. Monetizing that long tail is going to require a platform based approach, and a focus on engaging the developer community. Those that are afraid of the “talkification of the web” need to find a way to embrace it.
The potential, of course, is huge. The evolution of the carrier from a series of separate and silo’d services into a consistent experience across all of their assets is a way to unlock tremendous value for the consumer, and at the same time create lasting and enduring value for the shareholder.
What the JAJAH research tells me, though, is that the carriers are still dithering in some key areas. For example:
- They can see the prize that IPTV represents, their prior indecision has put them behind and many are now contemplating acquisitions in order to catch-up. Once they’ve acquired those assets, how will they create a unified experience. Hint: a unified bill, while valuable, is not a unified customer experience.
- They’re afraid of Google. Google gutted the advertising industry, and while it created enormous value, carriers participated only as bit pipes. If the carrier doesn’t “talkify” the web, it will happen all over again.
For those of us who have proselytized value added services for so long, there is the scent of a welcome change in the wind. Companies like JAJAH, and our own iotum, which have been building for this day for many years are well positioned to reap the benefits of this shift, whether it’s by partnering with the incumbent carriers, or the upstarts that frighten them.
UPDATE: Jon Arnold also conducted an interview with Trevor Healy, which appeared today.