Strategic Intelligence

Reflections on the world of electronic communications and media

4 April 2007

I Still Don't Know?

BT, it has been reported is planning to withdraw its consumer ISDN service. I doubt there will be much of a wake - after all two 64Kbit/s channels, each requiring you to dial up and incur call costs as you go, looks a bit sorry next to the multi-megabit land of plenty we find ourselves in now. But at least the bandwidth was both ways and digital, which it meant that you really did get what it said on the tin and it didn't fall over all the time, unlike the analogue modems of the time. And, dare I say it, your average consumer broadband connection now.

A child of the often ponderous international telecom standards processes - the original acronym is the German "Integriertes Sprach- und Datennetz" - it was developed as far back as the 1970s and put into operation at a distinctly leisurely pace over the following two decades. Nevertheless, if the sausage was rather a long time in arriving, the sizzle was not so slow. ISDN was going to usher in a digital wonderland of video, data and, of course, clear and faultlessly connected calls. And in fact the technologies underlying the relatively limited set of products bearing the ISDN label have delivered much of that, not to mention acting as the foundation for current mobile services.

Clarity, though, was never really a feature of the technologists' explanations of what it was actually for - hence the satirical expansion of the acronym in the title of this post - and there were a few others in a similar vein. They may not have known, but the killer application eventually turned up in the shape (if that's the word) of the internet. Pretty soon even Primary Rate ISDN - the 2 Mbit/s version for corporates with up to 30 voice lines built in - looked a bit sick, not to mention prohibitively expensive from a consumer perspective. The average UK consumer broadband "headline" download speed was 3.8 Mbit/s at the end of 2006, according to Ofcom, the UK telecoms regulator.

The trouble is that the killer app in this instance might just live up to its name. Not only has this cuckoo forced telcos to build a bigger nest, but now it has started to devour the existing money-spinning occupants as fax falls victim to email and VoIP makes inroads into the revenues and margins telcos make from telephone calls.

The loss of revenue might in itself be sustainable, but perhaps more worrying for telcos are the changes to the structure of the industry that IP brings with it. VoIP, for example, can be offered to customers directly with little or no involvement from (or revenue to) traditional telcos, unless the users of the service are to be given the facility to call ordinary telco numbers. Similarly, services like video sharing or IPTV, have the potential not only to bypass the telcos' relationship with their customers, but also to undermine the economics of consumer broadband by gobbling up prodigious quantities of bandwidth.

All this poses a potentially lethal strategic dilemma for telcos. Most historic monopolists have at least managed to hold onto the lion's share of consumer broadband access in their national markets, though BT has less than a quarter of the UK market. But doing the same for the myriad services made possible by IP seems a little unrealistic, not least when you consider that competition for such services is often global and against the likes of Google, Apple/iTunes, Microsoft and Yahoo!. And besides, it is one thing to be reasonably good at providing a stable and reliable utility service, as you would expect from an access provider, and quite another to make a success of chasing the fickle technological whims of a high-tech consumer products industry, as telcos have often discovered to their cost.

Similarly, it may be fantastical to assume that an intimacy with customers built on a grudgingly-paid quarterly or monthly bill and the occasional fix for a service problem will lend itself to a lasting relationship with customers that can be cemented with the addition of multiple unrelated services, as Centrica (British Gas) found in the late 1990s and early 2000s.

A radical alternative, particularly for telcos with a degree of scale, might be to play the internet at its own game and concentrate solely on providing the networks, stop their often huge investments in developing software and services, instead deploying public interfaces for programmers and service providers to develop whatever services they see fit. This is a prospect that telco managers have long used to frighten small children - that of becoming a "commodity bit pipe". It would certainly entail a large degree of downsizing, but whether investors would be quite as terrified of such as prospect as the telcos imagine is uncertain.

Is there some kind of middle way? Well, if there is, it might involve a somewhat more proactive approach to encouraging service providers, for example providing a well-ordered platform for IPTV services over their network, complete with must-carry channels and an equitable EPG - something like an open Sky TV service.

Which way the telcos will jump will no doubt depend on many things, not least corporate arrogance, tempered by economic reality. BT, at any rate, appears to have opted for the more obviously bigger sources of "new wave revenues"(in its terminology) with some success in the corporate market at least. Others, like C&W, have drawn in their horns and left the consumer market altogether. Most seem not really to have made up their minds - perhaps a case of "I still don't know"?