AT&T – Ma Bell – isn’t the phone company anymore. This is a powerful indication that something major is going on in the service provider market, and that interexchange carriers such as AT&T are going to have to change to survive.
What’s going on is the commoditization of traditional services such as voice and even enterprise data. That translates to double-digit revenue losses unless carriers can tap new sources of revenue. The consumer market is essential to this initiative. Each of the IXCs has to create a role for itself in the broadband-enabled, content-directed, consumer future.
Main index: The fate of the IXCs
AT&T is the largest of the IXCs and has the strongest position with enterprise users. For AT&T, the optimum strategy is a two-pronged assault on the future content market. On the consumer side, AT&T must make its broadband VoIP offering a smashing success, guaranteeing AT&T a foothold with those users who make the broadband transition. That consumer foothold then can be developed to include content, video telephony and so forth.
For the second prong, AT&T needs to start moving its current enterprise users from low-level transmission services to high-level application services. The framework for application services and the framework for consumer content distribution are much the same, and both are based on the Web services standards now being adopted worldwide.
Content is a two-sided game: There are consumers and suppliers. AT&T’s current enterprise customers are the suppliers, and if they can be made to supply content through AT&T, then the maturing of AT&T’s consumer VoIP offering into a broader content-based relationship can work.
For Sprint, it’s all about wireless. Wireless services are holding their profit margins better, taking the pressure off in the near term. If Sprint starts offering 3G wireless handsets with at-home Wi-Fi capability, that pulls the carrier into broadband homes and gives it a shot at evolving content opportunity.
Sprint then can peddle its access to the highly mobile teen and young adult market to content providers to promote relationships with Sprint. It might be years before anyone watches “Lord of the Rings” on a wireless handset, but music videos and concerts are content too, and Sprint owns perhaps the best on-ramp to the market for those types of content with its youth following.
MCI has perhaps the clearest path and perhaps the hardest. The former poster-company for the Internet has fought through accounting scandals and Chapter 11. The network that was the center of the Internet is intact, but the company has faltered, and the “we’re the Internet” association has weakened. MCI needs to become the Internet again. The carrier must demonstrate not only that it can be a player in both the consumer and publisher side of the Internet but also that it can take the Internet to a new and profitable place.
Like AT&T, MCI has good corporate clients. Like AT&T, MCI has plans to move these customers up to managed and application services. But unlike AT&T, MCI has no strong consumer broadband offering, no VoIP. It’s probably a good thing that the EU has reversed itself on the Sprint/MCI merger it once barred; MCI is probably the IXC most in need of a partner.
There will be a lot of IXC focus on the enterprise in the next year, a lot of talk about how moving enterprise buyers to higher-level services will restore profits. For a time, that’s true. All the IXCs need a near-term profit boost, but they need a place in the consumer market – in consumer broadband – in the future or all the enterprise business won’t stem the negative tide.
Unbundling might be dead, but every single IXC has the option to wholesale RBOC DSL at a modest discount. Bundle that with VoIP, with dual-mode 3G/Wi-Fi phone, with consumer electronics content delivery, and you have a business. There is life beyond voice, beyond legacy services, but not much hope within those old boundaries. None of the IXCs have to fail, but those that don’t recognize the importance of the consumer/content market to their future probably will.
