Why Telcos Are Like Zombies (The Old Ones)

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zombieThere was a time when zombies didn’t run.  You know, the Night of the Living Dead zombie, or I Eat Your Skin (not seen it? Go on – it’s dreadful!).  But then, suddenly, Danny Boyle does 28 Days Later, and most recently with World War Z, zombies start running again, really, really fast.  I don’t get it, I really don’t.  I mean, if they’re zombies, they’re zombies, right? And zombies are really, really effective characters, there’s absolutely no mistaking what it is that they do, it’s really hard to kill them, they’re often bullet-proof, you know the drill.  A bit like telcos, it seemed to me.

Not the undead part, of course; Telcos are very much alive and kicking, and any rumors of their demise should be parked. But the effective, deliberate, bulletproof piece.  And, of course their incredible, unmistakable, glacial pace.  Almost all the people that I speak with who work for carriers are really smart people.  They work diligently, they are up to speed on the industry, its trends, its threats, they know in many circumstances what needs to be done in order to transform and to compete.  So internally, things are moving at a fast pace.  People are moving around, they’re getting promoted, redeployed, they’re running ten different projects simultaneously – awesome output, incredible productivity.  Externally too, the ecosystem is moving at a gazillion miles an hour.  New devices every month; new apps every week; new branding and marketing campaigns every day!  Yet for all of this, both internally and externally, the industry remains immovable, pretty much doing what it has always done – sell connectivity.  Any attempts at fundamental transformation, shifting the core business model of the industry, never seem to get momentum, and – with the exception of mobile – the innovations of the last couple of decades get owned by other companies.

When the subject of innovation comes around, either it’s rooted in network or service delivery optimization, or it’s going to get deprioritized.  Most of the carriers I speak to get annoyed or offended by that, and usually point to various projects and teams and so forth, spending countless millions on this, that, or the other.  But, ultimately, it pales into insignificance when compared to the countless billions that continue to get poured into network capacity improvements and service delivery.  This is despite all of those good people I referred to earlier, who understand the opportunity for the industry in growth areas like payments, cloud, machine to machine, and data monetization.

Now, there are some good reasons for this.  In what behavioral economists call the default preference, or status quo bias, carriers choose not to fix what is not yet broken.  Telecom revenues continue to rise, and there remains outstanding opportunity to drive even further cost out of service delivery through strategies including supplier optimization, software defined networks, and infrastructure virtualization.  The rise of over the top (OTT) service providers, read in one way, suggests that telecom operators are losing out on massive revenue opportunities.  Read in another way, Google, Amazon, Facebook and the rest are aggressively driving demand for core connectivity.  Carriers may complain about margin pressures, but it remains the case that demand for their core offering is skyrocketing.

Google fiber, however, gives one pause.  As does GiffGaff in the UK.  Google fiber is offering free broadband (at 5Mb down, 1Mb up) and monetizing the customer relationship (and its data) in alternate ways.  GiffGaff is fundamentally changing the way in which customer service is delivered, relying on community based support – just as you’d expect from eBay, Google, or any of the OTT players.  These are entirely new ways of delivering connectivity services, and while each has its challenges, they are each demonstrating how the interconnectedness and engagement of the digital consumer are pulling the rug out from under our basic assumptions about the way things work.

Best Buy Revenues (billions)The really big question, it seems, is timing.  The internet may have heralded the death of the high street and the old retail industry, but it took fifteen years to really bite.  While the internet was gathering itself to attack Best Buy in the US, which finally seems to have succumbed, it took a long time.  In the interim, Best Buy made an enormous amount of money, generating almost half a trillion dollars in revenue between 1997 and 2013.  Now, while there are undeniably all sorts of opportunities for incremental revenue generation that may or may not have a significant impact on carrier performance in the near to medium term, there remains a question of opportunity cost.  If it takes ten years for the protective regulatory edifice to crumble, and for unfettered competition to genuinely compromise carrier earnings – 2013 was the first year Best Buy did not turn a profit – then why divert the attention of the company away from what has always worked?

So things may be changing, but we’re not really sure that they’re going to change that quickly.  Certain markets are showing signs that disruption is having an effect – Free in France is putting a large dent into the market and showing that doing things differently can produce fast results.  The big carriers in that market however are showing little signs of significant change.  We must not mistake this for lethargy; there is a calculation at work.  If Google was to acquire a carrier in the US; if Softbank decided to become the change agent in the market; if, if, if… The telecommunications market is definitely changing, but, for now, it’s steady as she goes.

Digital Transformation Segment Leader, IBM Global Telecommunications Industry

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