Looks like the telecom carriers in their search for new revenue sources are looking to jump on the porn bandwagon. In a new report, the Yankee Group suggests that revenue from “adult content” will climb to US$90-million in the U.S. and US$1-billion globally by 2008. In the U.S., the carriers will have to deal with child-protection legislation but they will likely get around the law by acting as a middleman rather than the content supplier. For those who has doubts about wireless porn, the Yankee Group says PhoneBox Entertainment gets more than 75 million hits a week. The two things I have learned about the porn industry – from a business perspective, that is – is do not under-estimate the industry's size, or its ability to use technology to deliver new prorducts and services. It was the porn industry, after all, that was among to capitalize on the VCR, e-commerce, and DVDs. See today's National Post (A3) for more.
I'm into new technology as the next guy and willing to concede there are all kinds of tech toys destined to be popular that I would never find useful. One of these items may be a wireless phone that can received high-definition TV signals. Texas Instruments Inc. has apparenetly come up with a new chip, and plans to have sample phones available within two years with a commercial launch in 2007. Maybe it's just me but I barely have the need to check e-mail while away from the office, let alone watch TV. But who knows what teenagers and couch potatoes will buy.
This may be an extreme position but a fundamental part of the telecommunications industry appears to be doomed.
The culprit is Internet-based technology, otherwise known as IP, used to send bits of information along high-speed networks.
While IP technology will provide new and innovative services to residential and business customers, it will also increase competition dramatically and make it hard for carriers and cable companies to grow sales and profits.
This is a harsh take on an industry looking to get back on its feet again, but the impending signs of disaster are becoming more evident. Last week, for example, the U.S. Federal Communications Commission approved rules that will let electrical utilities offer high-speed Internet services. The decision means carriers and cable companies will see more competition at a time when the competitive boundaries between carriers and cablecos are blurring.
If the utilities become serious about providing IP services, it could easily lead to a nasty battle as carriers and cablecos defend their turf while they try to expand into new areas themselves.
The environment is already intense as cablecos such as Rogers Communications Inc. look to get into the telephony market, while carriers move into the digital television business.
Meanwhile, companies such as Vonage Holdings Corp. are capitalizing on the growing popularity of high-speed access to offer services such as Internet telephony, video-on-demand, software-on-demand and streaming music. Many of the new service providers do not need alliances or joint ventures to reach consumers. All they require is a healthy marketing budget and consumers with a high-speed connection to the Net.
If IP and high-speed networks continue to become more pervasive, consumers and businesses will have many ways to access services. If you don't want traditional telephone service from Bell Canada; Vonage or Primus Telecommunications Canada Inc. will be happy to provide an Internet-based alternative. If you are unhappy with Rogers Cable Inc. or Shaw Communications Inc., Bell and Telus Corp. will have a digital television service. Down the road, you may be able to get these services through a large utility, such as Toronto Hydro.
With more competition and ability to pick and choose IP-based services from hundreds of suppliers, prices are bound to tumble. Look what is happening in the Internet telephony market where Vonage recently dropped its prices again — offering more evidence Internet telephony is destined to become a cheap, commodity based business with razor-thin or no profit margins.
For carriers and cablecos that have to maintain and upgrade high-speed networks, lower prices are a troubling development. If sales and profits are not growing, will anyone have the resources or the incentive to spend money to improve networks?
If carriers and cablecos pull back on network spending, this could be a nightmare for equipment makers such as Nortel Networks Corp. because there will be less demand for new technology. As Duncan Stewart wrote in this space last week, consolidation among equipment makers seems unavoidable.
It may be that network operators will have to reinvent themselves into “big pipe” operators, and let smaller, more flexible rivals provide many of the next-generation services. This may be an extreme scenario but there are markets such as long-distance where the business fundamentals are quickly eroding.
The competitive dynamics of the telecom industry could force many carriers and cablecos to make bold strategic moves to remain competitive and viable. A good example is Bell Canada's $200-million bid to win the telecom contract for the 2010 Winter and Paralympics Games in Vancouver. Bell's desire to capture the high-profile contact was highlighted by its eye-popping offer of $90-million in cash to the Vancouver Organizing Committee — nearly twice the $50-million proposed by rival Telus.
Michael Sabia, BCE Inc.'s CEO, made it abundantly clear a key part of Bell's decision is based on the idea that as technology makes it easier for suppliers to deliver telecom services, brand will become a more important tool to keep customers.
“What will differentiate us will be brand, and under brand will be service,” he said. “That brand power can increase customer demand for our products and, two, make customers more loyal to our products. Given the importance of churn in the economics of this business, anything to enhance customer loyalty is very powerful.”
At the end of the day, the emergence of IP and high-speed networks will be wonderful for residential and corporate consumers: more choice and lower prices.
But for carriers and cablecos, the future does not look good. There will be so much competition for business, it is difficult to believe anyone who is not lean, mean, flexible and lucky will survive.
Motorola Inc. may have taken the air out of the telecom equipment industry's recovery hopes when it talked about slower growth in the fourth-quarter – after posting slightly better-than-expected third-quarter profits and a 26% sales increase. The company said it expects to boost its share of the wireless phone market with the introduction of 17 new devices that hit the shelves this quarter.
Some more encouraging news came from Lucent Technologies, which had strong third-quarter results on strong wireless sales. The quarter marks the fifth consecutive profitable one for Lucent, and its first profitable year since 2000.
Next up (apparently) is Nortel Networks Corp., which is expected to release its third-quarter results later this month – likely on October 27th when it posts its bi-weekly update to the Ontario Securities Commission.
Rogers unveiled a new long-distance service that provides consumers with 5 cents/minute prices if you subscribe to at least two other services. The interesting part of the discount LD offer is the stuff in the background. First, it talks to how Rogers will approach telephony pricing when (if?) it launches a cable telephony service in mid-2005. UBS Warburg analyst Paul Fan said he expects Rogers to take an aggressive approach as it goes after customers in rival Bell Canada's backyard. Second, Rogers is rolling out LD with help from Allstream Inc., which is providing the network backbone. While Rogers executives have denied it, I get the distinct feeling that Allstream will be a major part of Rogers' telephony plans. Allstream gets a big customer to use its existing backbone while Rogers gets to save a whole lot of cash to get into the telephony business.
If telecom carriers didn't have enough problems, the Federal Communications Commission adopted rules earlier this week that will let eletrical utilities provide high-speed Internet access services. This is very troubling news for carriers – and cable companies, for that matter – because high-speed access has been one of the few high-growth/revenue generating markets. If electrical utilities decide to get into the broadband powerline (BPL) game, it will no doubt mean reduced consumer prices and fewer customers for carriers and cable companies.
BPL works by connecting computers to the Internet through electrical sockets. Using a specialized modem, computer users can get speeds of one to three three megabits/second. So far, the biggest roll-out of BPL has been done by Current Communications Group and Cinergy Corp., which launched a service in March. To date, the service has attracted more than 16,000 customers. The New York Times reports that widespread BPL service will likely be avaiable for more than a year.