Just finished recording a webinar for COMDEX-Virtual on Mobility + The Cloud = Convergence in Telecom. Khali Henderson, Editor-in-Chief of Phone+ magazine was on the panel with me. I shared this article her because it was relevant. Now I want to share it with you along with my thoughts.
The main point is that telcos (and cellcos and cablecos) are fighting hard not avoid becoming just a dumb pipe. They want it all. Jean-Louis Gassée points out that AT&T was the first cellco to share revenue with the handset maker. Let's face it, Apple's iPhone was just one more device to sell to the Tribe but it also happened to expand the tribe. The iPod helped to grow the Apple tribe from a fringe to a device-loving mainstream. Some even bought Mac books. The iPhone was the first device that incorporated the whole vertical.
Cool handset with a great user experience (UX); a smartphone that was also an iPod and a computer. Apps and iTunes for added revenue. That was a first.
Sure today Blackberry and Android have app stores, but not Palm or Blackberry or even Nokia thought of it first.
And creating Face Time (the video conferencing app) was brilliant. (The other really cool app is Spark's Tour Wrist, that takes full advantage of the parts, pieces and UX of the iPhone.)
Back to the ecosystem. The Telcos weren't the fist ISP's. They waited till the market matured, then steamrolled their customers to take the market. I can't figure out if they are missing the SAAS and Cloud boat or again waiting for others to figure it out for them, then cannibalize that market. As a consumer, I think the ILECs suck in billing and customer service. Employees at the RBOC's are so harried that they can't even get Winbacks correct. More layoffs are rumored at AT&T -- including Channel folks -- this quarter, which just means even less people that know what they are doing and even less hands to actually do it. What an opportunity for CLEC's and MSP's.
Their quarter-by-quarter mentality makes it hard to do business with (or work for) them. It also remains to be seen if that short-term mentality can handle the $70B in debt that AT&T is holding. According to the FT.com, "Verizon Wireless had about $15bn of net debt and was generating about $1bn of cash a month". Verizon's total debt is $57B, according to Verizon filings. Two companies with $127B in debt and about a 17% margin, who just announced that they feared sales would dip in 3Q. Plus VZ has had 2 red quarters and 2 quarters saved by tax credits from sales. They need to wrench every dime out of their cellular customers - handsets, monthlies, apps, ringtones, accessories, you name it. No wonder VZ moved some Android handsets to Bing. They have to keep one eye on Google, since GOOG is now platform, apps, SAAS, store, search and advertising.GOOG just needs a dumb pipe :)
Handsets have usually been a sales driver - even before the iPhone, but especially since then. But carriers subsidize those with contracts. Handset makers have done whatever the carriers wanted. That's why Open Source devices haven't seen much play. Until Google helped build the open source Android platform. Now that could be a game changer.
It would be more of a game changer if the FCC would remind VZW that the 700 MHz spectrum they bought came with a kind of Carterphone provision. But alas our FCC is a toothless old man with bad memory and worse eyesight. (You heard me, Julius!)
Amazon, Google, Apple, Salesforce.com are all strong forces in the SAAS world. All have e-commerce strength. All have a head start on the telcos for value added income. Can the telcos steamroll the likes of these guys?
Then you have HP buying Palm. If there was a dark horse, here it is. Palm was the first smartphone. HP understands the cloud and data centers. BellSouth tried working with EDS on e-Commerce and major hosting, but it was a disaster. (Sales teams couldn't wrap around what they were selling. This is a major problem for ALL carriers right now). Jean-Louis Gassée points out that the e-commerce (music, video, apps) is the difficult part - and Nokia and Microsoft both failed. I see a Fail whale in the telco future as well.
So HP could take two-thirds of the ecosystem as well.
I wonder which one will try the MVNO route first, just to demonstrate to the carriers that you can be kind to your customers and still make money.
Until Julius wakes up and grows a pair, we will see a battle in the cellular arena. Structural Separation is still my favorite phrase.