Telcos Show Their Google Envy

Telcos around the world have been spending billions of dollars to construct fiber networks. But what these carriers end up using them for is anyone's guess, including their own.

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

materialgirl 12/5/2012 | 3:43:56 PM
re: Telcos Show Their Google Envy It is good to see that the telcos finally realize they are no match for the Net. However, to view GOOG as one step removed from their user base is looking through the rear view mirror. For instance, as a happy GOOG Checkout user, they have my credit card number. With GOOG Docs, et all, they are entering the SaaS business. With MSFT still pushing Vista, they have handed a huge opportunity to GOOG. In short, a year from now I expect GOOG to have many more direct customer connections than they do today.
rjmcmahon 12/5/2012 | 3:43:55 PM
re: Telcos Show Their Google Envy Buy Go Daddy. Start billing consumers for bw consumed and slowly phase out the flat rate, buffet style, pricing model. Institute revenue share with third party providers based on bw demand created.
ethertype 12/5/2012 | 3:43:47 PM
re: Telcos Show Their Google Envy "Buy GoDaddy"? Perhaps you've been looking at the GoDaddy Girls a bit too long.
rjmcmahon 12/5/2012 | 3:43:46 PM
re: Telcos Show Their Google Envy re: ""Buy GoDaddy"? Perhaps you've been looking at the GoDaddy Girls a bit too long."

You're probably right! Don't tell my wife ;-)

What I'm looking at is the ease at which one can host a domain. I'm thinking the trend is to virtualize almost every app and a large portion of the data sets onto their own machines. I'm also thinking that Go Daddy is making money the old fashion way, e.g. by generating recurring cash flows, rather than selling pro forma numbers and things like eyeballs to investment bankers, investment bankers who do a great job making sure counter party surveillance keeps them from lining their pockets! That never happens.

Free markets self regulate. They even regulate a fiat money supply making the fed's job moot. And all that "excess savings" that Greenspan claims to be the problem couldn't be funny money in the first place!
bollocks187 12/5/2012 | 3:43:28 PM
re: Telcos Show Their Google Envy Well its time for the time to double the price for internet access and stop commoditizing bandwidth.

Without bandwidth Google is just not as good an experience.

Bandwidth is provided by the Telcos and MSO's so increase prices.

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