Telcos must transform their businesses to stop slide in profits

Opinion

Telcos must transform their businesses to stop slide in profits

Big companies and organisations of ancient pedigree find it hard, if not impossible, to change quickly in response to market demands and new technologies, and Telcos are no exception. 

Wrong footed by mobile networks, WiFi, VOIP and broadband, they have seen their potential profits siphoned off by service providers operating on a global scale at the periphery of their networks. 

In less than three decades Telco profit margins have been eroded from 25% to 6% or less, but it isn’t going to stop there – they are treading an irreversible path to become commodity retailers where profit margins range from 2 – 4%.

What then should they be doing if they had the capacity for rapid change, and could they maintain healthy profit margins in the process? 

Here is a short list in priority order, for their complete transformation.

1. Cease all the facile debate about broadband and optical fibre and get on with rolling out what is required. A network of fibre to every home and office that provides bi-directional transmission of bits at any rate demanded by future customer and market activity.
2. Fund this roll out by building stock closure and sell off, plus the recovery of copper, lead and plastic invested in the vast amounts of copper cables that need to be recovered. A Telco with 1000 switch and repeater buildings will typically require ten to 20 when copper cables are replaced by optical fibre. In addition, staff and fleet reductions can be progressively reduced by 80 – 90% along with truck rolls and spares holdings. Reprogramming the network instead of continually rewiring it also affords progressively more savings whilst service levels improve.
3. In the process of point two migrate away from Multi Protocol Label Switching (MPLS) involving the concatenation of ATM, Frame Relay, SDH, WDM et al protocols and equipment. The analogy here is the transportation of a letter by a postman riding a bike inside a truck on the back of a rail car. It makes no engineering or economic sense and is extremely costly in every dimension. So move to an IP core asap.
4. Attack the old Business Support Systems (BSS) and Operational Support Systems (OSS) by replacing them with vastly streamlined, and modern, systems.  Continuing the age-old practice of ‘making do’ and adding layer upon layer of equally ‘old thinking’ facilities is crippling. It's time to start a new chapter. Throw out all the ‘copper mindsets’ and get into this century.
5. Recognize the new business opportunity of extending home and business hubs beyond WiFi to include 2.5 and 3G mobile phone access + local storage and entertainment facilities.
7. Progressively close down the fixed line telephone business and migrate all customers to mobile only. Fixed line telephones are now about as useful and relevant as a morse-key and telegraph network.
8.  And finally – form new partnerships with those on the periphery who are making the real profits and powering the change of business and society through new devices, facilities and services that will never originate from a commodity player.

Will this actually happen somewhere?  In the East it already has, in the West I’m not holding my breath.

Peter Cochrane is an engineer, scientist, entrepreneur, futurist and consultant.

He is the former CTO and Head of Research at BT, with a career in telecoms and IT spanning over 40 years. Peter has also held a number of prominent academic positions including the UK's first Professor for the public Understanding of Science and Technology. For more about Peter, see www.cochrane.org.uk.

 

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This was first published in December 2009

 

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