It has been a white-knuckle ride for the telecoms industry recently - and it is not over yet. Players have changed tack, swapped sides, merged, demerged, disappeared, acquired and divested so often that you would be forgiven for losing track of who does what and with whom.
The first cracks began to show two years ago. Increasing price competition meant that cosy cohabitation of network operation and service provision within a single business was no longer viable. Vertically integrated businesses need to break up to
continue to create shareholder value, but most failed to rise to the challenge.
Now, the combined content-owner and service-provider model is looking shaky too. Economics and emerging technologies favour separate entities. A major content and service split is on the cards.
Digital media service providers first came on the scene to bridge the gap between content makers and viewers. And they carved themselves a decent niche. By understanding what the viewing public really wanted, they bought content from multiple providers, bundled it up into digital packages and sold it on at a higher price.
The marriage worked. The really good ones recognised that they did not need to own a network - they just provided the interface, bundled content, delivered the service and captured viewers with exclusives.
Take AOL - it provides the access, Time Warner supplies the exclusive content and other companies convey it over their networks. And it was plain sailing - even through the rocky patch in December 2000 when investor appetite for media and telecoms ventures all but dried up. It had major debts and advertising revenue was on the wane, but they believed this union could not fail.
But just as network operation and service provision did not gel, content and service are about to come unstuck too. The flaw in the recipe is that exclusivity creates very little long-term value for either content or service providers. It is good as a tactical marketing tool to get target customers to churn away from competitors - but once they have churned exclusivity matters very little. Crucially, it acts against the service provider, who can secure higher revenues by selling to a wider audience. Even Time Warner could find its distribution options limited by exclusivity with AOL.
So the pure-play service providers are coming into their own. By broadening the scope of their service bundles, they are finding customers more loyal and less likely to turn to providers that offer exclusive content deals.
New technologies that change industry economics will finally sever the content and service union. Extensible Rights Mark-up Language (XrML) will, in the next 18 months, provide the enabler for digital asset management and digital rights management technologies to automate and integrate packaged media with different service bundles. Transaction costs will fall, media packaging will be less labour intensive, and competition will grow. It will be the separate entities that emerge as winners.
In a competitive market like telecoms it is near impossible to grow shareholder value by carrying out more than one activity within a single business.
So, with the separation of content, networks and service providers into unique businesses, the white-knuckle ride is just gathering speed. Blink and you'll see a very different telecoms landscape when you open your eyes.
Patrick Bossert is a principal strategist at KPMG Consulting