Amazon "Chime" Illustrates "Value" Problem

“Everybody” knows that the telecom industry has a “perception of value” problem. A new conferencing service launched by Amazon illustrates the problem.

Before your head blows off, this is a conferencing service normally purchased by businesses, offered by Amazon Web Services.

Amazon Chime will be sold direct, and by partners Level 3 Communications and Vonage.

Level 3 will offer Amazon Chime as part of that firm’s “Unified Communications and Collaboration Services” portfolio.

Vonage now includes Amazon Chime in its business communications plans at no additional cost.

Three observations, here. AWS is the app creator and owner, not a “traditional” communications service provider or a unified communications specialist or enterprise voice provider. That is just one more example of over the top suppliers becoming substitutes for traditional telecom suppliers.

Level 3 is a distributor of Chime, not its creator and owner. That illustrates the growing role of access providers as conduits for thi…

"Layer Zero" Illustrates Broader "Value" Problem for Telcos

The industry audience listening to a talk by Marcus Weldon, Bell Labs president, about the drivers of future value in the next era of telecommunications drew immediate laughter when Weldon talked about where telecom sits in the end user’s estimation of value.

Go to 08:30 minutes into the video if you just want to hear the discussion of where telecom sits in the perception of value. Or watch starting at about four minutes in if you want to hear the Bell Labs vision of how "value" will be created in the next era. 

The point is that we work in an industry that once was considered layer one of a seven-layer model with “applications” at the top, but now is said by a growing number of observers to be at layer zero. 

Sure, the open systems interconnect model was created to illustrate the way modern programming should be done, but the idea has come to illustrate the "dumb pipe" problem as well.

To the extent that value is found "higher in the stack" at layer seven, t…

Telecom's Layer Zero Problem

Telecom, if we are honest, is a business in trouble because its value to customers and users is no longer something we can take for granted. That is what the phrase “dumb pipe” is all about, if a bit of a misnomer.

Voice, text messaging, video content and other services sold by access providers often have a layer seven function as well as encompassing the lower functions, because those services literally are applications sold to the customer, not access to a cloud that sells or provides the services to a customer.
“Best effort” internet access turns out to be the first real “dumb pipe” product generally and widely sold to customers.
But, in an era where computing-based products provide the value that drives consumers to buy internet access, the access itself can be viewed as a low-value function.
“Layer zero” might only be a reasonable description of “internet access,” but the apt concern is that, over time, more of the former applications value supplied by telcos simply is removed to …

Internet Access--Good, Deployed Fast and Also Cheap--Pick any 2 (UNLESS)

There’s an old adage in marketing: “good, fast, cheap: pick two.” At least for most physical products--virtual or software products are different--that adage illustrates basic trade-offs.
Quality tends to cost more. Rapid availability of new products tends to cost more.
So products can be made available at less cost if they are “not as good” or “take longer to deliver.” In the area of physical or tangible products, speed, quality and cost tend not to align (intangible products often can break these rules).
You might say the worst of all worlds is to supply an intangible product (internet access) using a capital-intensive manufacturing process (building physical access networks).
One clear example: business models in competitive markets where facilities-based competition is possible.
As a rule of thumb, a third entrant in a fixed network access market has to hope for market share of about 20 percent to survive. On the other hand, the two existing suppliers then can hope to sustain share…

Is There Enough Capital for All Telcos Must Do? Probably Not. UNLESS.

Aside from all the other strategic issues telecom executives will face in the coming decade, capital allocation will be a huge issue. Simply put, there might not be enough capital to do all the things service providers might prefer.

But there is a huge caveat. There might be ways to make massive acquisitions if the assets become cheap enough. Really cheap.

In other words, if global service providers collapse from about 800 to about 100 by 2025 or some similar date, that suggests most will either be acquired, or simply go out of business.

You might doubt there is enough capital to accomplish that scale of acquisition, so fast. You'd likely be correct.

But there is one scenario where massive consolidation is possible, and the survivors are not buried in unsustainable debt.

if asset values absolutely crash, and most sales are of the "distress" variety, that will mean most service providers have found their business models are not sustainable, their equity value will drop, and…

How Costly is Internet Access, Across Countries, Really?

It never is easy to compare prices for internet access across countries, partly because of currency fluctuations, but mostly because prices have to be considered in context: what other goods cost locally, which plans are compared and which plans most people buy, for example, really matter.
Absolute prices are one thing. What something costs, in any local economy, can vary dramatically. The easy example is what US$10, or euros, will buy, in any local economy.
Most comparisons are made on “absolute” price measures, not adjusted for local prices. So one study of prices shows typical monthly prices between $45 a month to $65 a month for access at speeds between 25 Mbps and 50 Mbps.

This chart from CB Insights shows typical internet access speeds and typical prices in a number of countries. With the caveat that it matters how one chooses a single speed or price to characterize access in any country, as well as stating prices in uniform terms across countries (purchasi…

Profits are the Key Issue, Even as Telecom Revenues Grow

It is no secret that nearly all of the telecom industry’s global revenue growth has come from emerging market mobile. So anything that affects emerging market mobile necessarily affects the global industry as a whole.
That will be a challenge, as the ability to grow revenue is lagging the ability to make profits on that revenue.
In other words, “top line” revenue growth conceals a clear danger: profits are not growing as fast as top line revenue or account growth.
And though both “new revenues” and “lower costs” are key issues for telecom suppliers, revenue is the bigger challenge.
In any business, if the top line revenue cannot--for any combination of reasons--be increased, then cost basis has to be adjusted downward, to maintain a sustainable bottom line. If, after doing so, the business model remains challenged, market exit is the only other option.
And that is what is likely to drive the whole global business for the next decade.
Does the emerging market mobile business face a “ne…