"Earthlink, has publicly stated that it will now focus on broadband via cable, turning its back on dsl except where cable access isn't available."
Cover story: Eyes wide shut
..."Telecoms is dead. It has no future," insists Ovum's Sue Uglow, one of the industry's leading analysts.,...
info@total.emap.com 01 January 2002
Whether large or small, telcos, mobile and cable operators around the world will walk the same tightrope this year. They will need to find the right balance between cutting costs and still being able to exploit opportunities. As Stewart Baines argues, the wisest will use 2002 as valuable downtime to rethink and restructure radically. Those that don't will face a very uncertain future.
If you think last year was a rocky ride for the telecoms business, you'd better hold tight. The immediate future looks even more turbulent. Report after report confirms the worst. This year will be even worse than 2001. While last year's downturn provoked savage and, at times, unfocused attacks on costs, the full repercussions will only be felt this year. And investors, now in no mood for knee-jerk reparations from the expansionist excess of the late nineties, will want evidence that telcos are radically restructuring and refocusing their business. Further reductions in headcount are unlikely to be the solution and will no longer be enough.
"Telecoms is dead. It has no future," insists Ovum's Sue Uglow, one of the industry's leading analysts. With flat or falling revenues predicted for Europe, Asia and the US for the whole of 2002 and reaching into 2003, it is a bad omen for the executives of embattled telcos. "The whole market could well collapse, and that may not be a bad thing." Uglow is one of a growing band of industry figures who thinks that the shape of the whole industry is in desperate need of an overhaul rather than a mere facelift. "Telecoms is going through a very difficult phase," says Matthew Finnie, a senior vice president for European telco Interoute. "It needs to be more discriminating. At the moment it offers an all or nothing approach where telcos are chosen because of geography and price and not because of the variety of applications they can offer."
Because of the attention paid by investors and debt holders to balance sheets, operators have been unable to hide failings. One of the most striking is how hard it is to run a business with at least two very different financial flows. The emphasis of the network infrastructure side is high investment with low returns spread over a long period of time. It has very different timescales for operational expenditure, capital expenditure and return on investment than the typical service arm which has a much higher and faster return on investment though more risk. The networks, for instance, only make economic sense "when you pile them high and sell the cheap," says Ovum's Uglow. "Otherwise known as sell like hell to anyone you can." The vertically integrated telco structure precludes this opportunity leaving one supplier, one customer. "The problem with networks and services together is that they compete for resources and capital expenditure. The network side frequently wins out,!
when attention should really have been placed on content or service innovation." Both industry and financial analysts are beginning to think that these two cultures are incompatible in one company, particularly in a tough market. And while incumbent telcos are the first to face this problem in any great depth, it is widely expected that mobile operators, cable operators and new carriers will also struggle with conflicting interest. In the US, cable operators have already invited isps onto their networks to supply cable modem services. One of the largest isps in America, Earthlink, has publicly stated that it will now focus on broadband via cable, turning its back on dsl except where cable access isn't available. Yet in the UK neither NTL or Telewest would dream of inviting other service providers into their network. They will wait until the European Union decides whether to force the cable local loops to be opened up to wholesale competition in the same way they are attem!
pting with copper. |
