I was intrigued by a recent entry in BrokenTelephon3 which talked of “the end game for the traditional telco model”. It was followed by comments attacking Ian Grant for confusingly juxtaposing disparate developments, much as I am wont to do myself. The “games” are changing but I was unclear which “model” was coming to an end.
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I recently blogged on BT’s latest attempt to diversify into content distribution. I am still unclear whether this is driven by greed or fear. Does BT believe it learned something from running the communications operations for the Olympics that will enable it to succeed against Sky. Or does it fear that Liberty-Virgin, Vodafone-C&W, Clan Macquarrie (Arqiva, City Fibre and the other siblings and cousins) and others will invade its “traditional” communications utility markets and cream off its leased line and business revenues (including the carriage of traffic for content publishers and entertainment operations) and it therefore needs to build up direct consumer revenue streams covering more than just the “connection”.
The UK communications infrastructure (wayleaves, ducts, poles, cables and switches) has a heterogeneous ownership structure as well a complex set of architectures, let alone technologies. Like the Internet that rests on top of it, it is a network of networks. BT’s last attempt to re-engineer those parts of the infrastructure that it manages (albeit does not always own) was interupted by local loop unbundling. It is trying again. BT’s great strength in the past was its understanding of how to run build and run complicated communications networks. To date it has been no more successful in its attempts to diversify than other former telcos (like AT&T, Deutsche Telecom, France Telecom etc.). Hence the lack of enthusiasm of City Analysts for its latest attempt to take Sky head on.
There is an interesting political conundrum.
Is the UK is better served by encouraging BT to put more effort into upgrading the UK communications infrastructure – for others to use to make money?
Or should it accept that BT management believes it has learned sufficient to give a better return to shareholders from diversifying into publishing sports content than from further increasing its investment into building and running the high-resilience 21st century communications infrastructure on which society will increasingly depend.
If HMG accepts that BT is going to diversify away from being a communications infrastructure operator, should it give greater encouragement to those who believe it is making a mistake and this is an attractive market to them – even if that means Treasury may have to bail out the pre-privatisation pensioners if BT’s diversification attempts fail again.
This is not, however, a winner takes all race. As a private investor I have spread my money over a number of horses running different races on the same course at the same time. I have done quite nicely from buying BT shares shortly before the recent price rise, but suspect I may get a better long term return from the money I put into B4RN at about the same time. I also have shares in Sky and Vodafone.
However, I would really like to be able to invest in more operations like B4RN, because I believe that a mix of local shared infrastructure utilities and global operators may well be a safer and more profitable long term investment than companies fighting for a share of national or regional entertainment budgets. That is, provided the local operators build and run to international, any-to-any, inter-operability standards, thus allowing their subscribers to also access any of the many competing local and global content services. Such an approach also makes it easier for those which fail to be taken over and run by others.
I believe that bringing about and preserving that competitive market should be a prime focus of DCMS and Ofcom and that local authorities should be enabled and encouraged to do whatever is necessary to bring their communities on-line – including via municipal enterprise, mutuals, co-partnerships and co-operatives where this makes economic sense.
Is that an “end game” or a call to revert to the Victorian values and business models which created many of the shared infrastructure networks on which we are still building today. Let us also remember that Capitalism is a Marxist shiboleth. It had no place in The Wealth of Nations and in Victorian times the joint stock company was only one among a wide variety of investment vehicles.