Monday, December 27, 2004
Thoughts on 2005
Jotting down one’s thoughts on various aspects of the upcoming year seems to be nearly mandatory in blogdom, so here are mine on a few on topics of interest to the telecom industry:
VOIP – THE technology story of 2004 likely has a few more surprises in store for 2005. The cablecos have mostly finished installing the technology in their networks, so we can expect a sales and marketing barrage as they attempt to lure telco customers over to them with full triple-play offerings. The telcos will continue to roll out their offerings, but mostly they will be half-hearted actions aimed at forcing additional regulatory decisions by the FCC.
There will certainly be more VOIP start-ups, perhaps a few IPO’s, but there will likely be some failures and consolidation, too. The main challenge that the start-ups are facing is in developing name recognition, which means that their expenditures on sales and marketing efforts will exceed their expenditures on technology for their services platforms. Only a few – Vonage and AT&T – would appear to have the ability to become true national brands.
The second challenge that these firms face is in simplifying the technology even further to increase its appeal to the non-techies of the world. Joint development efforts with consumer electronics firms would go a long way in developing integrated, attractive and simple-to-use products.
Finally, I believe that there is huge potential for “private label” VOIP services that are offered by smaller local and regional ISP’s and carriers – the types of companies that know their customer bases and are looking for add-on revenues to ride the broadband pipes but who can’t afford the investment in their own VOIP infrastructure at this time. Level 3 has taken a good first step in moving that way by putting softswitch functionality into their HomeTone offerings. The next logical step would be to create a “voip in the box” product set for the wholesale market: develop CPE and backoffice systems (ordering, provisioning, billing) that could be sold to multiple companies that can’t or don’t want to develop their own systems needed to support VOIP.
WiMax – The other technology darling of 2004 will move past the hype stage and into real equipment and operation deployments. If it lives up to the claims of its promoters it could become a real competitor to the telco-cableco duopoly, at least in providing 2 of the 3 triple-play services: broadband access and VOIP. And it can become the platform with the reach and economics needed to provide broadband services to customers in sparsely-populated areas where DSL and cable don’t operate.
Political and Regulatory – 2004 was a good year to be an ILEC. The FCC’s decisions on UNEs will put the stake in the heart of many of the non facilities-based CLECs that serve residential and small business customers, which should stabilize the ILEC’s line losses, at least for some time. The key regulatory agenda items include:
FTTx – 2005 will be a good year for telco construction and equipment firms. With Verizon, SBC and BellSouth making massive capital expenditure commitments for their various high-speed network deployments we’ll be hearing a great deal about how their fiber schemes will match up against the cableco networks.
Unfortunately for the Baby Bells the cable guys have pretty much finished their builds. So while the Bells are busy tearing up your streets and lawns the cablecos will be ramping up their sales and marketing campaigns and converting many of the Bell’s existing customers into cable-based triple-play customers. The other challenge that the Bells will face in going up against cable is the development of compelling video offerings. I believe that they underestimate the difficulty in acquiring, packaging and marketing video. In contrast VOIP is a relatively easy service for the cablecos to layer onto their broadband networks. And, if the much-rumored deal between a consortium of cablecos and a wireless provider comes to pass they will have another offering to make their packages more attractive. All-in-all it looks like the cable guys are the winner in these skirmishes in 2005.
What will be interesting to watch is where the telcos will be deploying their new fiber networks. Logic would dictate that it is going to be into the neighborhoods with the most attractive demographics, and where the cablecos are probably taking their best customers. This isn’t good for you as a consumer if you don’t happen to live in one of those markets. You will have to wait longer for the promised offerings to come your way. This concentration of investment that largely bypasses smaller cities will continue to fuel municipal network initiatives as these entities very well understand the need for a first-rate communications networks as a must-have in order to attract new business and investment to their locations.
IXCs – Everyone has pretty much written off the likes of AT&T and MCI. Their former consumer long distance divisions are losing customers to the ILECs, cablecos and VOIP providers, and the local business they built using UNEs will no longer be economically viable when the price increases take effect in 2005. What they are still very good at is providing services to large, multi-location business and government customers. The Bells don’t have the sales, support and network expertise to compete for these types of customers so rather than develop it organically they’ll get it by buying an IXC. Expect that when a move is made on AT&T a similar move for MCI won’t be far behind. Sprint may escape the frenzy, at least for awhile, due to its planned merger with Nextel.
It's going to be another interesting year in the industry.
VOIP – THE technology story of 2004 likely has a few more surprises in store for 2005. The cablecos have mostly finished installing the technology in their networks, so we can expect a sales and marketing barrage as they attempt to lure telco customers over to them with full triple-play offerings. The telcos will continue to roll out their offerings, but mostly they will be half-hearted actions aimed at forcing additional regulatory decisions by the FCC.
There will certainly be more VOIP start-ups, perhaps a few IPO’s, but there will likely be some failures and consolidation, too. The main challenge that the start-ups are facing is in developing name recognition, which means that their expenditures on sales and marketing efforts will exceed their expenditures on technology for their services platforms. Only a few – Vonage and AT&T – would appear to have the ability to become true national brands.
The second challenge that these firms face is in simplifying the technology even further to increase its appeal to the non-techies of the world. Joint development efforts with consumer electronics firms would go a long way in developing integrated, attractive and simple-to-use products.
Finally, I believe that there is huge potential for “private label” VOIP services that are offered by smaller local and regional ISP’s and carriers – the types of companies that know their customer bases and are looking for add-on revenues to ride the broadband pipes but who can’t afford the investment in their own VOIP infrastructure at this time. Level 3 has taken a good first step in moving that way by putting softswitch functionality into their HomeTone offerings. The next logical step would be to create a “voip in the box” product set for the wholesale market: develop CPE and backoffice systems (ordering, provisioning, billing) that could be sold to multiple companies that can’t or don’t want to develop their own systems needed to support VOIP.
WiMax – The other technology darling of 2004 will move past the hype stage and into real equipment and operation deployments. If it lives up to the claims of its promoters it could become a real competitor to the telco-cableco duopoly, at least in providing 2 of the 3 triple-play services: broadband access and VOIP. And it can become the platform with the reach and economics needed to provide broadband services to customers in sparsely-populated areas where DSL and cable don’t operate.
Political and Regulatory – 2004 was a good year to be an ILEC. The FCC’s decisions on UNEs will put the stake in the heart of many of the non facilities-based CLECs that serve residential and small business customers, which should stabilize the ILEC’s line losses, at least for some time. The key regulatory agenda items include:
- Access charge reform – the FCC needs to make changes to the dog’s breakfast of intercarrier compensation. Many groups have put forward proposals, most aimed at greatly reducing or eliminating switched access charges under so-called bill and keep arrangements. Expect that the ILECs will fight this as they won’t win any popularity contests by increasing subscriber line charges to end users, and the charges continue to put pricing pressure on the IXC’s. The biggest decision in this space is what, if any, access charges will apply to VOIP. The ILECs will want interstate access rates while the VOIP providers and their CLEC partners will push for reciprocal compensation rates at the most.
- USF, CALEA and E911 applied to VOIP – all important safety net items, but how do they apply in the VOIP realm?
- Municipal networks – anticipate more battles between municipalities that want to build their own access networks, whether wireless or fiber, and the telcos and cablecos. About 15 states now have laws that prohibit government-owned networks. Expect a flurry of efforts by the telcos and cablecos to introduce similar legislation in other states – but strangely enough don’t expect them to refuse subsidies tossed their way to incent them to accelerate their network builds or modernizations in exchange for the state or municipality foregoing a public network build.
- Franchises fees – will the Bell’s have to pay franchise fees in order to provide video offerings over their new fiber networks?
FTTx – 2005 will be a good year for telco construction and equipment firms. With Verizon, SBC and BellSouth making massive capital expenditure commitments for their various high-speed network deployments we’ll be hearing a great deal about how their fiber schemes will match up against the cableco networks.
Unfortunately for the Baby Bells the cable guys have pretty much finished their builds. So while the Bells are busy tearing up your streets and lawns the cablecos will be ramping up their sales and marketing campaigns and converting many of the Bell’s existing customers into cable-based triple-play customers. The other challenge that the Bells will face in going up against cable is the development of compelling video offerings. I believe that they underestimate the difficulty in acquiring, packaging and marketing video. In contrast VOIP is a relatively easy service for the cablecos to layer onto their broadband networks. And, if the much-rumored deal between a consortium of cablecos and a wireless provider comes to pass they will have another offering to make their packages more attractive. All-in-all it looks like the cable guys are the winner in these skirmishes in 2005.
What will be interesting to watch is where the telcos will be deploying their new fiber networks. Logic would dictate that it is going to be into the neighborhoods with the most attractive demographics, and where the cablecos are probably taking their best customers. This isn’t good for you as a consumer if you don’t happen to live in one of those markets. You will have to wait longer for the promised offerings to come your way. This concentration of investment that largely bypasses smaller cities will continue to fuel municipal network initiatives as these entities very well understand the need for a first-rate communications networks as a must-have in order to attract new business and investment to their locations.
IXCs – Everyone has pretty much written off the likes of AT&T and MCI. Their former consumer long distance divisions are losing customers to the ILECs, cablecos and VOIP providers, and the local business they built using UNEs will no longer be economically viable when the price increases take effect in 2005. What they are still very good at is providing services to large, multi-location business and government customers. The Bells don’t have the sales, support and network expertise to compete for these types of customers so rather than develop it organically they’ll get it by buying an IXC. Expect that when a move is made on AT&T a similar move for MCI won’t be far behind. Sprint may escape the frenzy, at least for awhile, due to its planned merger with Nextel.
It's going to be another interesting year in the industry.
