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Transformation Interrupted - Beyond the 'Usual Suspects'
(Please note: Originally published in July 2002, exhibits from this report can be seen in the downloadable .pdf copy)
Can Telecom Be Saved From Itself?
July 2002
Twelve years after the government-imposed AT&T divestiture, the FCC began implementing the Telecommunications Act of 1996. Its lengthier legislative title: “An Act to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.”
At last an industry transformation, in the midst of the rapidly commercializing internet, would bring entirely new networks, services, and business models to the industry.
The entrepreneurial excitement surrounding deregulation was about the last part – “rapid deployment of new telecomm-unications technologies”. At last an industry transformation, in the midst of the rapidly commercializing internet, would bring entirely new networks, services, and business models to the industry. Internet innovators would exterminate the senile dinosaurs in communications as well. The distinctions between voice and data, phone and internet, wire line and wireless, local and global, would be erased
The prevailing spirit became increasingly pugnacious, complete with pre-fight trash talk about “Moron’s Law”[1], challenging the ageing heavyweight incumbent champions to put up or shut up, or better yet just retire.
That telecom and internet infrastructure businesses have since imploded is old news, but understanding the magnitude and scope of the crisis – what went wrong and why – is essential to finding ways out the current quagmire. This paper is divided into five parts:
- Briefly survey and size the unprecedented magnitude of the (continuing) calamity, especially for those not directly familiar with the industry
- Look beyond the commonly-held view of a badly-regulated, capital-fueled meltdown, examining what went wrong with competitive strategy, and how it was complicit in bringing about the industry collapse
- Define a new ingredient in strategic recipes for restoring growth: creating value by sharing value – redefining the boundaries between competition and co-operation and changing the rules of the game.
- Provide three quantified case examples, illustrating a new asset- and revenue-sharing business model for driving a next-generation of telecom services demand
- Show how financially-stable telecom players today can restart the industry transformation, challenge incumbents to similarly resume a growth track, and move the industry to more conservatively align its capital structure both with growth strategies and the demands of capital markets.
A transformation many hoped to be “disruptive” turned destructive on an unprecedented scale.
A transformation many hoped to be “disruptive” turned destructive on an unprecedented scale. Having reached what one hopes is the low water mark of apparently fraudulent accounting, the entire “transformation” has been left in shambles. When we ask “can the telecom industry be saved from itself?” we mean can it avoid its natural inclination to repeat strategies which played directly into the capital-fueled crisis, and even the desperation of outright fraud. “Saving itself” means restoring genuine growth by providing real customer value. It means not just repeating the last five years but with fewer players, cleaner balance sheets and more prudent financial management. It means not unquestioningly re-applying decades-old business models. It’s time not for a “do-over”, but for a different game.■
1 Enjoying brief prominence as an in-the-know sound bite, “Moron’s Law”, a sardonic play on “Moore’s Law”, referred to the incumbent telcos near-monopoly over last-mile broadband access and their (economically rational) intransigence in failing to facilitate much faster rates of DSL buildout by opening their facilities to new entrants such as Covad. The term was widely publicized by John Doerr, a general partner at venture capital firm Kleiner Perkins Caufield & Byers, and Robert Metcalfe, a well-known Silicon Valley entrepreneur, co-founder of 3Com, and co-inventor of the Ethernet. See Rich Karlgaard ,“Digital Warriors Want Baby Bells’ Blood”, Wall Street Journal, December 8, 1997
IV: Sharing Value to Create Value
V: Jump-Starting Alternative Business Models (and Epilog)
Download this article:: TransformationInterrupted.pdf [4.1mb]
11 July 02
