Thursday, August 9, 2007

Telco vendors don't know who they're selling to

A few weeks back I was talking to a representative of a certain tier 1 equipment vendor and we got talking about disruptive business models, particularly the rise of VoIP and other “free” services and how it affects traditional telcos. Needless to say, it affects them rather badly, to the point where vendors get worried that there will be no-one with any money to buy more of their boxes.

Yet the scale of innovation and activity and of new companies entering the fray – and more to the point, buying equipment – is growing rather than declining. Just because the neighbourhood telco is treading water and letting the bean counters dictate the spending doesn’t mean that others are. I brought up the issue of Google and how I would have guessed that its spending alone would make up for some of the declining spending among some traditional telcos.

Given that I really was guessing about how much Google and the like spend, I asked the tier 1 equipment vendor VP and was surprised to learn that he really had no idea. So then I asked about alternative players generally – the likes of the major portals, municipal network providers, VoIP aggregators, the Skypes of the world social networking sites and basically anyone who is not a traditional telco but is offering telco-like services. Again, he suggested that it was not really something that the company had broken down.

I find that surprising.

Traditional telcos are seeing their main voice revenues slashed dramatically and at the same time newcomers are grabbing a lot of the lucrative new business, to the point where telco equipment budgets are being slashed, yet there’s very little insight into how much gear the alternative players are buying. In fact, when you look at all the analyst reports that give bold predictions for five years down the track, they don’t give this level of detail – at least the portions I see don’t. They talk about service provider spending without ever saying what a service provider is.

Yet in five years Google is probably going to look more like a telco than a lot of other companies that use that description today. Just look at what it’s doing in the US, where it is likely a major bidder for the 700MHz wireless spectrum being vacated by the analogue TV broadcasters. And it’s no secret that it has been buying up dark fibre in major markets for some time. Whether it eventually offers access is besides the point – it is undoubtedly a major buyer of telco gear whether it offers Net access to consumers or sticks with search and related ad-supported services.

Of course Google is not the only example of alternative players that may or may not look like a telco in the years to come. And there is no shortage of new companies that will be buyers of telco equipment. Presumably the likes of Facebook and any other social networking site that wants to stay in business is buying more network gear than your average network operator. Perhaps one day it, too, will be an access provider. I think in five years the definition of a “telco” could be very different to what it is today.

In the meantime, it could be useful to learn what the whole cross-section of companies that make up the communications sector is buying. For vendors, it might just surprise them who is actually buying their gear. – Geoff Long

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