The end of telco monopoly

A few weeks ago, I pointed out that local telcos that didn't prepare themselves for the massive structural changes created by the NBN stand the risk of remaining useful only for their network and will be consigned to life as data carriers. That view was further reinforced last week after I spent a few days at the CeBIT conference. The threat to telco revenue streams, currently derived from value added services, solutions and products, is emerging far quicker than anyone could have imagined and there was ample evidence of its impact on display at the conference.

The CeBIT hall was adorned with companies who three, even two years ago, were darlings of the IT and the telecom world. The likes of Nokia and Blackberry were once the kings of the mobile phone arena and Microsoft was the staple of business computing. However, the lustre of past glories has seemingly evaporated and the stand that Nokia presented this year would have been cobbled together with the sort of money that Nokia execs would have once spend over a Friday afternoon lunch. Change is fast, unrelenting and brutal.

There was a time when businesses were reliant on these companies, in conjunction with a telco, to provide the hardware, the software, the transmission of data, the hosting and the security layer. However, the speed of data, the bandwidth, the re-emergence of Apple / Linux operating systems and the change to hardware pricing have all contributed to new business models and opportunities. The NBN will only accelerate a process that is already in motion and telcos run the risk of being overtaken by nimbler rivals.

Let me give you an example what a typical company set-up from our Australian portfolio used to look like.

• Business was using Telstra for hosting, data, mobility and fixed lines.
• Telstra was providing the managed service for Microsoft licences, the desktop management of PCs, right down to hosted exchange and virus software.
• Telstra was providing the Quality of Service (QoS) and managed routers of the network.
• Telstra was providing the “dark fibre” to the hosting site and internet links from the hosting site.
• Telstra installed the hardware for fixed lines in conjunction with CISCO and managed this with a Telstra partner.
• Telstra provided the teleconferencing solutions which was limited to a voice bridge.
• The total cost of this solution, including usage charges, was approximately $1.85 million per annum.

With the IT and telecom sectors both undergoing a rapid evolution, influenced by NBN and global financial factors, the opportunities to structure this business IT account / portfolio are vastly different and involve a raft of emerging software and hardware:

• Telstra used for mobility and “back-bone” data into head office.
• Dark fibre used by NextGen (chosen from among Amcom, AAPT, Pipe Networks).
• Hosting by Interactive – internet connection from hosted site by Optus.
• 100 per cent of mobile field force on iPhone and iPads, with data backed-up to local cloud solution, syncing with SAN at hosting site.
• Fixed lines unchanged, but revised all-inclusive mobile plans means that 65 per cent  of fixed line call costs have been removed and have resulted in no commensurate increase in mobility costs.
• Mobile costs have decreases as plans have become more inclusive, including larger data allowances, and tethered devices such as the iPhone have replaced USB / data dongles.
• The business uses a niche IT outfit to provide QoS and management of routers. They are using web based management tools that provide real time network statistics, analytics and diagnostics that the IT manager can access from an iPad.
• Video conferencing has replaced voice conferencing, and is a combination of Face Time and Over the Top (OTT) web based solutions which, with the right data back bone, bypass all telco costs. Further, these web solutions better enable collaboration from people on the road with real time access to sharing documents.
• One further Full Time Equivalent (FTE) is required internally to manage the solution, and a level of redundancy (via 4G) is enabled.
• Multiple supplier costs are being managed through web based software.
• Total cost of this solution (which provides faster speeds and more data) stands at $1.38 million per annum.

See the difference. Businesses aren't just saving money but are taking control of complex solutions and managing multiple relationships in a seamless fashion. New operating software has empowered users with functionality that was once the sole domain of big telcos or the top end of town, which could spend the dough needed for a roll out and the management costs of innovative technology. The telco was traditionally the perfect intermediary / partner to manage the integration.

However, data networks (both fixed and mobile) now transact through faster data speeds and these are accompanied by lowers costs of telco services and a more robust network. These networks can in fact be better managed by third parties at a fraction of the costs when a telco provides the core network solution and all the management accoutrements.

The telcos, because of the quality of the networks, may become victims of their own success. They have built a brilliant system that empowers business and provides end users with both speed and ubiquitous access. The telcos have for too long ruled the roost, confident in their role as the managers of the full suite of user / customer add-ons. However, those days are surely numbered as software providers create affordable function through a wealth of new “killer apps.” Apps, which could potentially usher in a brand new era and remove the need for telcos to do anything but provide access and data.

Tony Simmons is the managing director and founder of The Full Circle Group, an independent telecommunications consultancy and software firm focused on Telco expense costs and management.