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TeleChoice Analysis: TeleChoice has published numerous books and white papers that focus on the information needs of service providers, and new categories of technologies and solutions. Additionally, several TeleChoice executives contribute articles in leading business and industry publications.

TeleChoice - TeleSparks

On occasion, we will share with our friends throughout the industry our views on major events and issues in the telecom industry.
We will use TeleSparks as the primary vehicle for sharing these (usually highly opinionated) views and we welcome your feedback.

TeleSparks is authored by Danny Briere, TeleChoice Chief ExecutiveOfficer, with input from others throughout the TeleChoice organization.

To subscribe to TeleChoice TeleSparks and Digest, tell your friends and colleagues to email join-TeleSparks@list.telechoice.com with "JOIN" in the subject of themessage.

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TeleSparks Archive

TeleChoice TeleSparks - The End of Telecom

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The News
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EDS has completed the acquisition of Loudcloud. IBM is acquiring 
Monday (formerly PwC Consulting). WorldCom’s assets are on the 
auction block.

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The TeleChoice Take
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Ever since Alexander Graham Bell invented the telephone in 1877,
people and businesses have bought their telephone equipment 
and services from a telephone company. That truth is at risk of 
becoming merely historical if telecom companies don’t change
their ways.

Historical Perspective
In most of the U.S., and similarly around the world, the history of the 
industry is largely the history of a monopoly. The Bell System 
represented a stable, trusted, and unquestioned part of business 
and residential communications. Although the monopoly system 
resulted in lack of innovative choices and relatively high pricing, 
we didn’t really notice or care until competition arrived on the 
scene.

In fact, our perspective of "telecom" was really just "telephone." 
In the scope of historical context, computers have been around for 
less than half of the history of the telecom industry, and broad use 
of networked computers for less than a third of that history. The 
PC didn’t begin entering the home until the 1980s (20 years out of
a 125 year telephone era), and most people hadn’t heard of the 
Internet until 1995 - a mere seven years ago.

However, over the past 15 years, and especially over the past 
seven years, the value derived from the copper and glass and 
electromagnetic waves running under our feet and over our 
heads is increasingly dominated by the value of connecting
together computers and moving information from here to there 
to perform critical tasks and make critical decisions.

When telecom was all about providing a black phone on a wall, 
a bedside table, or a desk and making sure that a call could be 
completed from that telephone to any other telephone in the 
world, our industry excelled. We showed up at the customer’s 
office or home, got the solution working. It was easy for anyone 
to use, and it could be trusted as a utility to always work.

Somewhere along the way we failed; we lost sight of the vision. 
Maybe it was in the heat of the competition that emerged at the 
same time that "telephone" was becoming "telecom," that voice 
signals were becoming data paths, and that the network was 
moving from analog to digital. Don’t get me wrong, all of these 
things were good for our industry and good for the society we 
serve.

But as we began to introduce telecom services, our view of the 
customer changed. Our services lost their "black phone" 
simplicity and the demands that we placed on our customers 
increased. We started forcing our customers to be technical 
experts. We stopped selling solutions and started selling 
components.

Back when we were in the black phone business, we may have 
called it POTS among ourselves, we may have talked of tip-and-ring, 
and as our technology evolved, we may have worked with DMTF 
and SS7 and all kinds of technical jargon; but what we sold to our 
customers was telephone service: telephone lines and telephone 
equipment.

When data hit the scene, we started selling DDS and DS-0s and 
T1s and X.25 and Frame Relay and ATM and PVCs and CIRs 
and DSL and LMDS and 802.11. And we got religious about the 
demarc. "My part works, it must be a problem on your end."

Bottom line, we forced our customers to in-source the solving of 
the real problems. We forced them to hire expensive technical 
experts who could figure out how to integrate all of the piece 
parts and then keep it all running. As technology has grown 
increasingly complex, this burden on our customers has grown 
increasingly expensive and hard to maintain (at a human level, 
much less an operational level). The increasingly tight integration 
of the computer infrastructure with the network infrastructure has 
created demand for people who can live in both worlds, and by 
the way, has made us even more zealous about defending the 
demarc.

Sure, there are some telecom companies that are willing to 
provide professional services to reach across the demarc and 
perform that integration and operations, but usually its with fear 
and trembling, at inflated margins to protect against the threat 
of the unknown, and almost always only when absolutely 
necessary to protect the most important customers. But our 
normal model is to tell our customers to do the dirty work 
themselves.

As data networking has moved down from large enterprises into 
the smallest of businesses and even into homes, we’ve continued 
this trend. Sure we can sell you ADSL -- or do you need SDSL or 
maybe VDSL? Do you want to buy the modem from us? I hope 
you have your own router and firewall and can configure your 
own Ethernet network, because we won’t do that for you....

I wonder why broadband deployment is limited to 12% of homes 
in America? I wonder why broadband over cable is outpacing 
DSL? Why would consumers rather buy "Broadband Internet 
Access" from their cable MSO when they can just as easily buy 
"Asynchronous Digital Subscriber Line" service from their 
telephone company?

I wonder why telecom services have become commodities? 
Even though networks are critical to the operation of today’s 
businesses, business customers are unwilling to place high 
value on the capacity creating those networks. (Don’t kid
yourselves, as an industry, we aren’t selling networks. We’re 
selling the component parts that we force our customers to 
integrate together into networks...)

Current Situation
Conventional wisdom says that the clear telecom winners are 
emerging. The RBOCs will dominate the residential and small 
business markets. AT&T, Sprint, and maybe WorldCom will 
dominate the large business to global enterprise space. 

The RBOCs’ monopoly reach into consumer homes gives them 
the unique opportunity to sell the low-cost bundles that consumers 
crave.

The Big 3 IXCs’ full product portfolio and network reach position 
them well to meet the complex needs of large enterprise 
customers. Increasingly, these arrangements have included 
professional services and outsourcing, but providing these 
services profitably has proven a challenge for our asset-focused 
industry.

A couple of recent transactions should be a warning signal to the 
telecom industry. The large systems integrators are investing in 
growth through acquisition and, by doing so, moving into new 
realms. Just as telecom vendors have been dragged into the 
computer world, the systems integrators are increasingly 
integrating large networked systems involving complex 
networking technologies connected across oceans and continents 
by telecom capacity.

These large integrators have the can-do mindset, customer focus, 
solutions orientation, and business model to easily make this 
transition. Managing a complex set of intellectual resources is 
core to their business; and as the technologies evolve, managing 
networking expertise is logistically no different from managing 
computing expertise.

And now, WorldCom’s bankruptcy has opened the door for these 
integrators to waltz in and cherry pick the missing pieces they
need to complete the portfolio of capabilities they can offer to 
customers. 

They don’t need much. They already have the customer 
relationships, and they can buy network capacity on a wholesale 
basis a lot more cost effectively than they could own and operate 
their own networks. 

It’s probably a good time to rearchitect the way networks are built 
to provide the solutions that enterprises need. Now that the 
customer doesn’t have to worry about the underlying technology, 
does an IP VPN or Virtual Routed Network make sense? Is an 
IP Centrex model more suited to EDS’ outsourcing infrastructure 
(especially with Loudcloud) than a traditional PBX or CO-based 
services? Which services do you buy from a wholesaler and 
which do you operate on your own platform? A clean slate 
provides plenty of opportunities to redesign to optimize 
operational efficiency with customer focus.

Bottom line, despite AT&T’s projected confidence these days, 
the enterprise customer base is not safe. Our attitudes and our 
outsourcing of the valuable activities to our own customers has 
set us up as an industry for a fall.

But it’s not just the large enterprise market that’s at risk. Today’s 
IP Centrex players offer a compelling value proposition to small 
and mid-sized players. Vendors like Narad Networks are also
arming the Cable MSOs to march into this space with broadband 
offers to compete with the RBOCs.

Of course, the MSOs already appear to be winning the consumer 
space. Telecom players continue to fall behind cable in 
broadband to the home, and where voice over cable has been 
offered, the take rates are phenomenal. And don’t look now, but 
even more consumer-focused giants are eyeing this market: 
most prominently Sony and Microsoft.

It pains me to say it, but our customers no longer need us.

Of course, businesses and consumers need what we have more 
than ever. They crave increasing amounts of bandwidth. They talk 
continuously on the telephone, whether at home or in the office or in 
the car or on the golf course. 

But we, as an industry, may no longer be best positioned to provide 
our components to them. For that’s all that we’ve become, 
component vendors. And the integrators are lining up to integrate 
our components with those from other industries into solutions that 
truly create value for "our" customers.

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What's Next?
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What Can You Do?
Obviously, this is intended to be a "wake up" issue. I ask you to sit up, 
take a deep breath, and consider what implications this potential future 
industry scenario has on your business. What can you do to be 
prepared for this future?

Specifically, consider this:

- If you are a service provider/carrier that sells directly into the 
consumer, business, or enterprise space, carefully consider the 
implications of this threat. Is it time for you to reconsider your product 
portfolio and to move from selling components you force your 
customers to integrate into complete solutions? If so, how can you 
prioritize your target markets so that you can deliver high-value 
solutions based on the unique strengths and capabilities within 
your company? If not, what’s your exit strategy if this scenario starts 
to play out? 

- If you are a wholesale service provider/carrier, what 
implications does this scenario have on your business? Who are 
your target markets today and who are your largest customers? 
Does this scenario represent risk to your business plan? Are you 
positioned to serve the integrator market? Do you have a channel 
enablement strategy that would arm these integrators to effectively 
and quickly deliver your components as part of their solutions?

- If you’re a technology vendor, are you ready to support the 
systems integrators? How well would your product and delivery 
suit their needs? Do your products enable new kinds of services 
that should be positioned through the integrators? As this scenario 
develops, are you prepared to partner with the integrators to help 
them launch new solutions successfully to their customers? 

- If you are EDS or IBM or another systems integrator, are you 
ready? Have you evaluated the market opportunity? Have you 
defined the solutions that you can deliver to your customers? Are 
you going to do it right, or just repeat the mistakes of the telecom
industry? 

The ability to cut through the confusion and fear in the industry, to 
look through today’s fog to perceive tomorrow’s potential futures, to 
logically and sensibly and bravely ask and answer the critical 
strategic questions, and to understand your competitive 
positioning and differentiation and act accordingly has never
been more critical. Let us know if we can help.

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Need Some Help?
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TeleChoice helps companies everyday better position their 
firms and products for success, whether re-examining 
fundamental business strategy or clearly communicating 
unique position and value in today’s tough marketplace.
Contact us at info@telechoice.com or visit ( http://www.telechoice.com/)


+=+=+About TeleSparks+=+=+

On occasion, we share with our industry 
friends our views on major events and issues in telecom. 
We use TeleSparks as the primary vehicle for sharing these 
(usually highly opinionated) views, and we welcome your 
feedback. Feel free to forward these on to others, but please 
copy us on the messages so we have a sense of the extent 
of distribution of our views.

TeleSparks is generally authored by Russ McGuire, 
TeleChoice Chief Strategy Officer, with input from others 
throughout the TeleChoice organization. You may contact 
Russ (rmcguire@telechoice.com) or your favorite TeleChoice 
contact to share your thoughts on these matters.


 

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