Economist Article on Telecoms

Mr_Man

Folks,

last weeks Economist had a number of excellent articles on the Telecoms business. They can be found at the following link -

http://www.economist.com/printedition/displayStory.cfm?Story_ID=2098967

However this is a subscription service so I've picked a number of telling quotes from one of the main articles:

For the incumbent telecoms operators, though, what is scary about Vonage is not the company itself but the disruptiveness of its model. Vonage is a telecoms company with the agility of a dotcom.

They are taling about using the internet to place local phone calls to anywhere in the world.

Their main problem at the moment is the rise of mobile phones, which are eating away at the incumbents' core business of fixed-line voice telephony. Such “fixed-to-mobile substitution” means people are making fewer calls on their land lines, and are doing away with second lines, thus reducing operators' revenues. European incumbents' fixed-line voice revenues are expected to decline by 2.5% this year, according to J.P. Morgan, an investment bank. In some countries the drop may be as much as 12%.

When prices of mobile calls drop further in Ireland this will only increase the slippage from Eircom.

Regulation is another tool that incumbent operators have been using to defend their positions, notes Andrew Heaney of Spectrum, a consultancy. In most parts of the world, however, regulatory decisions are going against incumbent operators as regulators strive to increase competition—though newcomers complain that incumbents are still making it hard for them to gain access to their networks.

Sounds too familiar

Until a couple of years ago, many operators soft-pedalled on DSL deployment or made it prohibitively expensive. This was usually because they were trying to protect other parts of their business, such as ISDN

Eircom wouldn't do something like this would they ?

Eventually, however, incumbents decided that the benefits of embracing DSL outweighed the drawbacks.

Time to wake up and smell the coffeee

But embracing DSL requires incumbent fixed-line operators to do the same as mobile operators: to switch from a predominantly voice-based business to one in which voice and data are equal partners. That entails a learning process for operators and, as with mobile data services, it means pricing and marketing broadband to appeal to the widest possible audience

Eircom haven't got this far yet, I wonder how long it will take ?

Most operators in western Europe, says Mr Philpott, are pricing their broadband services to achieve 10% penetration, but that goal is still a long way off. To expand the market beyond that, as South Korea has done, requires a different approach in which operators provide different levels of service at different prices. Instead of the usual DSL data rate of around one megabit per second, they offer faster connections (up to 6 megabits per second) to high-end users at higher prices, and slower connections (down to 0.15 megabits per second) to bring in more subscribers at the bottom of the market. Several countries are also trying usage-based pricing, in which the monthly bill depends on how much is downloaded, but so far this has proved unpopular with users .

....

but to get growth from DSL, incumbents will have to learn new tricks. They will have to become more data-savvy, form partnerships with content providers and market themselves in a different way. Mobile operators have been doing this for a while, and have made good progress in transforming themselves from stodgy utilities to vibrant consumer brands. Incumbent fixed-line operators must now follow in their footsteps. Broadband is the key to their future growth, but the transition will be hard to manage.

Anybody want to give odds on Eircom being able to manage this ?

M.

Dangger

Anybody want to give odds on Eircom being able to manage this ?

They already tried once.

but to get growth from DSL, incumbents will have to learn new tricks. They will have to become more data-savvy, form partnerships with content providers and market themselves in a different way.

Hmmmmm, Eircom have tried this already many years ago, snapping up new media companies and killing them off as they went, Rondomondo for example. They either knew what they were doing and bought them up so no one else could and starved them by with holding the required technologies (broadband) thus preventing the competition from getting them, or really didn't have a clue what they were doing. I'm not 100% sure which it

MadsL

Given the amount of money MONGOBONGO spent on hi-end video systems to be 'ready' for the broadband revolution, which never got unpacked from the boxes - I suspect the latter.

Ripwave

Originally posted by Mr_Man
last weeks Economist had a number of excellent articles on the Telecoms business...

However this is a subscription service so I've picked a number of telling quotes from one of the main articles:
...
But embracing DSL requires incumbent fixed-line operators to do the same as mobile operators: to switch from a predominantly voice-based business to one in which voice and data are equal partners

As we've seen quite spectacularly in the last month, The Economists view of the world, and the reality of life in Ireland, don't always match up terribly well.

Analog data call minutes already outweigh voice minutes in Ireland - I've never seen equivalent numbers for other countries, but I don't think Ireland is typcial in this respect. We also have above average Mobile penetration, with above average prices, something that the Economist insists can't happen, because the "market" will always sort this sort of thing out.

Don't get me wrong - I enjoy the Economist, and usually find it insightful. But I wouldn't waste much time reading too much into a general account of the telecoms market, and the situation in Ireland.

Canadian

We also have above average Mobile penetration, with above average prices, something that the Economist insists can't happen, because the "market" will always sort this sort of thing out.

The US is a free market. Korea is a free market. Even China has a lot of 'free markets' within its firm grasp. Ireland is a highly 'regulated' market.

Argue, post, protest, get angry and complain all you want but until your leaders focus on the good of the country over the good of their friends, you will be milked like cows.

Ripwave

Originally posted by Canadian
The US is a free market. Korea is a free market. Even China has a lot of 'free markets' within its firm grasp. Ireland is a highly 'regulated' market.

Nice bit of propaganda, that, but a total load of cobblers. US mobile operators avoided competition for years by running proprietary, incompatible networks, whereas the rest of the world all competed in a single technical market.

Government regulation isn't responsible for the high price of mobile communications in Ireland.

jmcc

Originally posted by Dangger
Hmmmmm, Eircom have tried this already many years ago, snapping up new media companies and killing them off as they went, Rondomondo for example. They either knew what they were doing and bought them up so no one else could and starved them by with holding the required technologies (broadband) thus preventing the competition from getting them, or really didn't have a clue what they were doing. I'm not 100% sure which it

Eircom didn't have a clue about new media. It did not actually buy any new media companies of consequence from what I remember. Rondomodo was an Eircom spawned clusterfsck as was Doras before it. Both were run by people who did not have much of a clue about making money from content delivery. This was essentially another venal Eircom landgrab. And it failed.

One of the funniest lines put out by Rondomondo was that they would compete with Sky on PPV and movie delivery. Basically these people were assholes who, in addition to misunderstanding the whole concept of publishing, did not have a clue about PayTV operations. (One moron in Rondo was actually overheard asking if I knew anything about PayTV. )

I don't really think that the lack of the technology played any part in the demise of Eircom's multimedia misadventures. They were classically ill-conceived from a business point of view (the idea of making money apparently was an afterthought) and had very little chance of survival because the cost of production was so high and the market was not willing to pay.

The situation for most telcos, Eircom included, during the dot.bomb boom was one of confusion as to whether they were content generation operations or a content delivery operations. Over the past few years, companies like Eircom have been concentrating on the core businesses of delivery rather than generation. But they are creating partnerships with content providers.

One of the reasons that may spur Eircom and other incumbents into rolling out DSL faster is the capability of WiFi based networks to take the market out from under them. As for the Ecomomist, some of their stuff is good but you always have a question as to who is supplying their information. At least with ENN, you can be sure that it it comes out of a press release.

Regards...jmcc