Regular readers will recall that I’ve been a longtime proponent of making the distinction between bandwidth providers and service providers, with the former specializing in low-cost, highly reliable infrastructure and the latter specializing in a broad range of customer-centric services.
Recent events have thrown this perspective into high relief. First is the growing trend of Web players taking over services that used to be considered the bailiwick of telecom providers. For example, consider eBay, AOL and Google:
EBay’s recent purchase of VoIP provider Skype positions voice as an add-on feature to online services, as does AOL’s VoIP offering. And it’s attracting notice among network professionals, not just consumers. In the wake of the eBay-Skype deal, one of my enterprise clients began seriously considering Skype as a low-cost VoIP alternative for remote offices in Europe and elsewhere. (For the record, we said it was a bad idea. Not only does China Telecom block Skype traffic – making it difficult to rely on Skype in that country – but also we have doubts about eBay’s ability to support and manage large-scale clients.)
Then there’s Google’s jump into the access business. In case you missed it, Google recently filed an application to offer free Wi-Fi services in San Francisco. The company also has recently purchased a stake in the Current Communications Group, which offers broadband over powerline services. Again, the move positions a traditional telecom service – in this case, local access – as an add-on to Internet search services.
It’s fair to say that Google and eBay (not to mention AOL) have squarely positioned themselves in the “service provider” business – even though the services they provide are non-traditional (online auctions, search and content).
The telcos are taking note. The CTO at one provider that specializes in relatively non-traditional services recently benchmarked his budget against his more bandwidth-centric competitors and found that while he spent much less on the traditional components of telecom services (circuits and switches) than they did, he spent considerably more in one key area: people. His business model looks a lot more like a consulting company’s than a traditional teleo’s (and yes, it’s very profitable).
A senior executive at a carrier that would be considered more on the traditional end of the scale is revamping his strategy to emphasize the non-bandwidth-centric services of management, collaboration and hosting. For enterprise customers (as opposed to consumers), this management component is particularly key: Companies tell me over and over that the ability to manage services end to end is a deciding factor in their selection of providers.
The takeaway? Going forward, service providers will be increasingly characterized by free or commoditized bandwidth and telecom services, intellectual capital rather than physical infrastructure and the ability to provide end-to-end management.
What do you think? Discuss in our Telcos’ new competitors forum.
