Telcos Show Their Google Envy
In a new report by Heavy Reading, Reinventing the Telco: A Heavy Reading Progress Report, a survey of five major carriers -- Orange (NYSE: FTE), KT Corp. , NTT Communications Corp. (NYSE: NTT), Telia Company , and Verizon Communications Inc. (NYSE: VZ) -- found that when it comes to delivering differentiating next-generation services, Internet companies like Google (Nasdaq: GOOG) have the edge, while telcos are still scratching their head over what to do.
“I feel like there’s been a change in atmosphere where the big incumbents have come to recognize that they can’t control these services any longer -- it’s all happening on the Web,” says Graham Finnie, chief analyst for Heavy Reading and the author of the report. Finnie says that the most significant finding from his survey was that carriers have given in and realized that they will need to partner with third-party application companies to deliver the advanced services consumers will ultimately want.
Many telcos are looking at third-party applications and trying to find ways they can add value to them. Most of the carriers feel that billing, security, and quality of service (QOS) capabilities are the key areas in which they can bring value to the table in a third-party application partnership.
Other areas include policy control in which telcos could provide preferential access for subscribers to the services, but as Finnie is quick to admit, “that’s a very controversial subject and hinges on net neutrality.”
When it comes down to it though, telcos are starting to realize that traditional telephony is a dying asset and that to keep growing revenues in the future, they’ll have to partner up and open up their networks to third parties. We’re starting to see that happen already with Verizon opening its wireless network and AT&T Inc. (NYSE: T) opening its own on a more limited scale. (See Verizon Tears Down the 'Walled Garden' .) In the next phase we could see more collaboration on the wireline side of things as well.
As it stands now, telcos see Google as its biggest threat in the advanced services arena. But while Google certainly has developed an impressive array of services, it does not make money as a service provider and relies almost exclusively on online advertising for revenues. [Ed. note: That's because it's an advertising network, not a telco, not an ISP, not a software firm, etc.] This presents a big advantage to telcos in that they’re the ones with the traditional paying customer relationship with consumers.
“Companies like Google and Facebook don’t have a direct paying relationship with consumers,” says Finnie. “That’s something the telcos could exploit. There are a lot of companies on the Web side who have interesting services but aren’t earning money from them and if telcos can find a way to monetize them, then it could mutually benefit both sides.”
In order to do that though, it all comes back to opening up their networks. “They’ll have to have open application platforms, which is still in the early stage,” says Finnie.
In the end, telcos find themselves at an interesting turning point. For years they have been able to survive on the one thing they do better than anyone else -- building and running access networks. This latest report reveals that they’re starting to realize that that will only take them so far in the future.
For more information on this report, click here.
— Raymond McConville, Reporter, Light Reading