5 Things The Telcos Want You To Know
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It's a bumpy road ahead for the telecommunications industry, according to TUANZ CEO Paul Brislen, who spoke at the Association of Local Government Information Management (ALGIM) conference in Taupo earlier this week.
The following is based on his ALGIM presentation to local government IT managers and CIOs.
The first thing the telcos would like you to know about their business is that it's a costly one.
The Ultra Fast Broadband (UFB) project will cost tax payers $1.35 billion over a decade, and that figure is matched two for one from the private sector.
That's not bad compared with the Australians who are spending A$42 billion to build their equivalent, although that rollout appears to be hitting political rocks at the moment.
That's just the UFB - on top of that we have three mobile network operators each spending about half a billion on network deployments to roll out 3G and soon 4G networks to a very large percentage of the population, and let's not forget about the international cables we need to talk to everyone else.
Then there's the money spent on unbundling, on building alternate networks (FX Networks and Inspire.Net for instance) and so on.
The Commerce Commission puts this figure at about $1.5bn a year and while the lion's share has traditionally been from Telecom, the figures put the lie to the idea that there is only one investor in infrastructure (these days that's Chorus), and that they need some kind of special protection to continue.
It's a costly business, but income from that investment is flat or declining slowly. Again, Commerce Commission figures put the voice market slowly declining from $3bn/year in 2008 to $2.5bn in 2012, a gradual drift downward that is not matched by any increase in spending on data. Sure, data use is increasing, but the costs are falling all the time, so there will be something of a shortfall.
Where is the money going? Over the top (OTT) providers, like Skype or Viber or Apple, are destroying markets by reducing the price to zero. International calling rates are dropping like a brick but customers are probably calling more often than ever before - they're simply using Skype or another equivalent service running over the top of the network operators.
New Zealanders love to send TXT messages - we TXT more than double the rate they see in Hong Kong, a country with twice as many people. That's peaked now - we've hit peak TXT - because companies like Apple make it easier to iMessage and that doesn't cost the customer anything.
Data usage is sky rocketing, but revenue from these OTT services are falling. When Microsoft bought Skype it became the world's biggest telco, but revenue from Skype services is trivial, which leaves the telcos with a lot of uncertainty, which is the second thing they'd like you to know.
Once, telcos ran their businesses with a hundred-year horizon. That fell to decades, then to years. Now control of customer demand has been removed from the telcos altogether.
I used to be a Vodafone customer. It was relatively easy for me to swap phones, but quite difficult to swap networks. My phone even had Vodafone stamped on it; such was the power of the network.
Today, I'm an Apple customer. I have music, books and applications loaded on my phone and I am part of a web of services that means if I want to move away it'll be a painful experience at best. It's easier for me to swap networks than it is to swap operating systems, and that means that the power the network operators once had has evaporated.
What really intrigues me about this move is that it's entirely a result of Apple launching the iPhone and with the gleeful help of the networks themselves. Quite remarkable.
When you add up dramatic changes to customer usage patterns, disruptive devices coming into the market, competition and regulation starting to bite, you get a market that is extremely different from the old days and full of uncertainty for the telcos. All of which leads to the third thing (and the one thing they don't really want you to know): the dumb pipe.
The telcos that survive will be the ones that understand their bits are no different from their competitors. They'll be the ones that get rid of the marketing department, the sales force and the fancy downtown offices and who concentrate on providing ubiquitous network coverage of a certain quality. They will be the dumb pipe, a utility and they'll make money by getting out of the way of the customers instead of inserting themselves into the customer's processes.
That won't go down well because (point number four) the telcos are important. Very important. The economy as a whole is utterly reliant on the telcos, and as we found out during the Canterbury earthquakes, much of our social structure is built on our ability to communicate with each other in a timely fashion.
Without a robust network, without competing operators, without strong, independent regulation that encourages investment, we won't have that enabler that lets Fonterra milk tankers know how much milk is waiting at each shed, we won't have people working from home, or building billion dollar businesses from the bach. Telecommunications is as important as electricity, water, roading, rail, shipping or any other infrastructure element you care to think of.
My last point is around what can we, and in particular local government, do to help all of that work. Telcos spend a fortune on consents to build infrastructure. We need to reinvigorate that process so the UFB builders can simply run fibre to your home or office without having to spend half the budget on a piece of paper to say they can do what we all want them to do. We have to work smarter around resource consents for cellphone infrastructure because currently the councils sit between rate payers and the telcos and often they don't help the process. We need to standardise between councils so consents that are rubber stamped in one jurisdiction aren't an 18 month process in another.
Telecommunications is vital to all our lives, whether we like it or not so let's work to make it transparent so we can get on with what we're really here for.
Paul Brislen is CEO of the Telecommunications Users Association of NZ