Baby Bells, RIP
By Tom Taulli
June 22, 2004
TheMotley Fool
Harvard Business School Professor Clayton Christensen wrote a classic book called the Innovator's Dilemma. It recounts the stories of big tech companies as sitting ducks. Upstart companies without the baggage of legacy technologies use disruptive technologies to change the face of an industry.
In the wacky world of telecom, the upstart companies -- with their disruptive technologies -- never seem to gain any traction against the behemoths, such as Verizon (NYSE: VZ), SBC Communications (NYSE: SBC), Qwest Communications, and BellSouth.
But this does not mean the telecom behemoths are not imperiled. In fact, the disrupters are likely not to be upstarts, but instead other behemoths, such as the cable companies.
Yesterday, Cablevision (NYSE: CVC) announced it is bundling TV, Internet, and phone services for its customers. It is using disruptive technologies, like voice over Internet protocol (VoIP), to allow for very aggressive pricing. The Cablevision bundle, for example, is pegged at $90 a month.
Essentially, voice calling is in the process of massive price deflation. Yesterday, for example, Skype launched its Linux version of free peer-to-peer network calling, which allows for five-way conference calling and instant messaging. So are Linux companies, like RedHat (Nasdaq: RHAT) and Novell, on the road to telecom?
There is also the relentless pressure from Vonage. There appears to be no end to the appetite to provide venture capital to this company, which has already thrown down the gauntlet to AT&T.
In a way, the battle for voice is similar to the arms race. It's expensive and ultimately defeating. But there are winners in the space. Who? To carry out the VoIP build-out requires equipment. And that should be good news to players like Lucent (NYSE: LU), Nortel (NYSE: NT), Sonus, Alcatel, and Cisco (Nasdaq: CSCO). |
