Not long ago I had a great e-mail exchange with a nice woman at Verizon who wrote to respond to one of my columns. We covered a lot of ground discussing the definition of what, exactly, comprises a telecom provider – a topic that readers of this column know is near and dear to my heart. Her contention was that Verizon’s peers are the traditional telcos: AT&T, Sprint, MCI and, in particular, SBC, BellSouth and Qwest (the former RBOCs).
I politely disagreed, and noted that it’s reasonable to ask whether a company such as Verizon, which obtains a significant percentage of revenue from wireless services, can be considered a “peer” with another company that doesn’t operate wireless services, such as MCI or AT&T. Or with companies such as GoRemote Internet Communications (formerly Gric) or Skype that offer infrastructure-less telecom services. Or providers such as InterNap and Nexagent that offer managed connectivity services. Or cable companies such as Comcast, Cox Communications, Time Warner and Cablevision that now universally offer bundles of voice and data services as well as traditional broadcast cable.
In short, the question of what comprises a telecom provider has gotten markedly murkier in the past few years. If you’ll recall from last week’s column, I defined telecom as the process of enabling remote human communication. There’s nothing inherent in that definition that requires switches or circuits – or cares whether those switches and circuits are TDM and copper or IP and fiber (or wireless). If it’s possible to be a telco without owning a wire, then the concept of a telecom provider has been radically redefined.
With all due respect to my Verizon correspondent, that perspective is becoming widespread. “We aren’t looking at ourselves as a phone company anymore,” a senior vice president at SBC said in a recent story in The Wall Street Journal. “A radical transformation is going on across the industry that’s only just begun.”
The trick lies in figuring out the effect of those transformations. For communications providers, this means spending time revisiting business models. For example, the margin on managed services is typically much lower than for unmanaged services – so a strategy promoting managed services can result in serious margin erosion. A software distribution model has much higher margins, but requires a steady stream of feature upgrades – not a process that’s familiar or comfortable to most legacy providers.
What about for IT executives who are putting together telecom five-year plans for their companies? The biggest challenge lies in determining how much business to begin offering to “non-traditional” providers and services – and at what point. For example, IP telephony services are saving companies serious dollars (particularly when voice, video and data combine over a common infrastructure). But it will be a long time until players such as Skype and Vonage can deliver real enterprise-class services for midsize to large businesses. It is best to stick with IP services from traditional telcos such as AT&T or Sprint. But explore non-traditional players such as MegaPath Networks, GoRemote, Fiberlink and InterNap for managed services offerings.
