Dodd's Recipe for Recovery
Dodd, who is managing director of Anthem Corporate Finance and vice chairman of data service provider ETT, was one of the leading architects of service provider privatization when he was serving as head of telecom research at Dresdner Kleinwort Benson between 1989 and 1999.
He believes that running telecom networks ain’t what it used to be, and the low margins and intense capital requirements will require providers to reach into enterprise data consulting and services business.
The trend has made itself known through a set of key mergers, Dodd points out, as major service providers have already made investments in the services business. He cites the acquisition of Infonet, the merger with Equant, and the Deutsche Telekom AG (NYSE: DT) purchase of T-Systems. (See BT to Extend M&A Spree, M&A Activities Firm Up BT Global, France Telecom Wants Equant, and Equant Acquisition Approved.)
The PTTs are being pushed in this direction by the decline in their core revenue base, voice.
”The legacy revenues are declining, and they are declining big time," says Dodd. "The entire video market is minute. Very soon I think voice will be entirely free."
In the meantime, Dodd sees the PTTs as fairly stable, because they are generating healthy cashflows. But over time, he doesn’t think they will be able to grab a big piece of markets already owned by insurgents -- such as Internet content -- and they are being pressured by declining voice revenues to migrate into enterprise services and consulting.
”The advent of the IP networks has the capacity to deliver Moore’s Law to users that the circuit switches didn’t. We are seeing the value migrate to services and software -- the PTTs have the value to migrate. Enter the integrators, and exit the old networks.”
And for those who think VOIP is the answer? Dodd doesn't see it as a real business, being that it's essentially free. "VOIP is a technology but whether it’s a market in itself is a dubious question."
Though he expects such big changes, Dodd expects the heft and profitabiliy of the PTTs to buy them time.
"Traditional markets will be dominated by PTTs. It will require new markets for the next giants. The incumbents have learned a lot, and they have moved rather swiftly to gain dominant positions in new markets."
— R. Scott Raynovich, US Editor, Light Reading